Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 14 - Evidence - Meeting of June 16, 2005
OTTAWA, Thursday, June 16, 2005
The Standing Senate Committee on Banking, Trade and Commerce met this day at 11:00 a.m. to examine and report on consumer issues arising in the financial services sector.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Welcome. Our first witness today is Mr. David Brown, Chair of the Ontario Securities Commission. Today's meeting is being televised live across the country as well as being webcast.
The examination of consumer issues has been a revelation for many committee members who thought that the problems were well in hand in many areas. Hence, we are delighted to receive the benefit of the advice of Mr. Brown. One concern is the inefficiency of the Canadian securities system, its cost and complexity, not because of the Ontario Securities Commission, but because of a national structure that does not allow us to meld the provincial securities commissions into a single unit. This issue has been ongoing for the better part of 40 years, and we are no closer to a solution, with the exception of harmonization. There is greater cooperation between the various securities commissions under the leadership of Mr. Brown, who is to be commended, given the difficult tasks.
Mr. Brown, I would ask you to speak briefly to allow committee members ample time for cross-examination. As well, could you advise the committee on the best recommendations to improve consumer protection within your area of expertise? Mr. Brown, we understand that you are leaving your position. We commend you for an outstanding job under difficult circumstances.
Accompanying Mr. Brown is Ms. Wendy Dey, Director of Communications, Ontario Securities Commission. Mr. Brown, please proceed.
Mr. David Brown, Chair, Ontario Securities Commission: Honourable senators, thank you for allowing me to appear today to discuss the Ontario Securities Commission Investor Town Hall, which we held on May 21 in Toronto. Mr. Stan Buell, President of the Small Investor Protection Association, mentioned it in his testimony to you. Mr. Buell participated with me on the town hall panel, with Mr. Michael Lauber, from the Ombudsman for Banking Services and Investments; Mr. Joe Oliver, from the Investment Dealers Association; and Mr. Larry Waite, from the Mutual Fund Dealers Association of Canada.
More than 400 people attended our first town hall meeting, most of them from the Greater Toronto Area. Others came from across Southern Ontario, including London, Huntsville and Gloucester. Another 35 listened to our live webcast. Each panellist made brief remarks. However, most of the event was an interactive question-and-answer session with the audience.
I believe that Senator Moore asked Mr. Buell if we would prepare a report on the town hall meeting. I can assure senators that we will do so at the end of June. I gave that assurance to those who attended the meeting. I will ensure that committee members receive copies of that report.
The need to give retail investors an opportunity to voice their criticisms of and concerns with the regulatory process became apparent last summer during hearings of the Ontario Ministry of Finance Standing Committee on Finance and Economic Affairs, SCFEA. The town hall meeting underscored the fact that too often the system that is supposed to address the grievances of investors has been a source of frustration instead. Many investors do not know where to turn. Among many who have the knowledge there is a lack of trust. That being said, we want to improve our understanding of the challenges facing retail investors.
While securities regulators have made it a priority to pursue investor protection issues, such as corporate governance, it is increasingly apparent that there is a need to place more emphasis on providing protection to the investor as a consumer of financial services. We must ensure that the system can respond to investors who have legitimate grievances. We must ensure that investors are able to access the system easily. First, we must identify the issues that are important to investors.
The town hall meeting was a start toward achieving those goals. We will be building on that, working closely with investors and other participants in the regulatory system. We can do that in three ways: First, we can provide more opportunities for investors to raise issues and to participate in addressing them. Second, we can convey to provincial governments the concerns we hear and advise them on possible legal and policy changes that we may deem justified. Third, we can introduce changes to the system that will help investors take advantage of the available options. Investors voice numerous concerns, which we will research to better understand the scope of the issues.
For now, I will summarize some of the things we heard and some of the things we are doing about them. We heard that it is necessary to make the system easier to figure out. Indeed, the OSC's Call Centre frequently refers callers to other agencies for assistance because their inquiries fall outside the jurisdiction of the OSC. We must ensure that aggrieved consumers know how to access the regulatory system, what the process will entail, and how to pursue their specific issue more effectively.
Investors come to the regulatory system when they have serious problems, but that system is fragmented and complex. Regulatory responsibility can rest with the IDA, the MFDA or securities regulators, depending on each set of circumstances.
We have to find ways to facilitate the investor's passage through this system. We heard a strong desire for restitution mechanisms for consumers who suffer a loss because of wrongful actions of market participants. The Ontario Ministry of Finance Standing Committee on Economic and Financial Affairs, SCEFA, highlighted the prohibitive expenses faced by aggrieved investors seeking restitution. It recommended that the government work with the OSC to establish a workable mechanism that would allow investors to pursue restitution in a timely and affordable manner. We are examining several ways of pursuing that goal. We heard that investors with a grievance need time to pursue all of their avenues, including the courts. One frustration that retail investors have raised is the limitation on investor suits. Under the Ontario Limitations Act 2002, a uniform two-year limitation period applies to all actions except those that are specifically carved out, such as actions by the OSC.
Unfortunately, this two-year limitation period leaves plaintiffs with a narrow window for bringing an action. Although a number of considerations pause the clock, we have learned that aggrieved investors do not always discover the full consequences of a problem until two years have elapsed. For a life-altering event such as losing a chunk of your life's savings, it takes time to come to terms with the problem. Attempting to obtain voluntary redress from a dealer or adviser can consume valuable time. Investors who pursue arbitration must relinquish the option of court action. For all of these reasons, we suggested to the Ontario government that it would be well advised to take another look at this two-year cut-off. The town hall meeting confirmed that investors have both complaints and ideas on to deal with them. It would make sense to take advantage of their expertise. Currently, the OSC has several advisory bodies and will begin immediately to establish an investor panel to provide advice and commentary on an ongoing basis.
One of the most important results of the town hall meeting was the validation of dialogue. Investors have a right to relate their experiences and views to the organizations responsible for protecting their rights and to hold us accountable in public forums. Regulators need to hear their stories, and in their own words. This was not the last OSC Investor Town Hall and it will become a regular event to provide an opportunity for constructive dialogues between consumers and regulators. I look forward to your questions, thank you.
The Chairman: Thank you, Mr. Brown.
Senator Meighen: In your remarks, you said that that was not the last OSC Investor Town Hall and that the OSC would follow up on other matters, et cetera. Regrettably, you will be gone in 14 days. What assurance is there that your successor will be willing or able to follow through with your recommendations?
Mr. Brown: That is a good question, and I heard it during the public forum of the town hall meeting. The tone was that this was Brown's folly, and might fall away. About 30 or 40 OSC people attended the town hall so they could hear the stories directly. The two vice-chairs, the executive director and several commissioners were present.
I was able to assure them all that there is an institutional momentum here that will survive long after I leave. I do think that the organization is very focused on addressing these issues and finding some solutions.
Senator Meighen: One investor was quoted in the press as saying that he was anxious to see some kind of system to monitor the implementation of the policies that are derived from the investor panel. Is this something that commends itself to you?
Mr. Brown: Yes, I think if we are to establish the credibility that we are hoping to, to get concerned people to sit on the panel, we do have to have a mechanism for assuring them that their advice will be listened to and for somehow demonstrating to the public that we are giving this advice appropriate attention.
Senator Meighen: I have sensed a perception among the public that enforcement is, if not lax, certainly at a lower level in this country than in the United States, for example. Random polls by various organizations always seem to indicate that enforcement is the number one concern, and that we in Canada do not take this as seriously as we should. I know Senator Kelleher, in previous hearings of this committee, has referred to the need for more orange suits and making an example of people who break the law. I do think that, among the public, it is generally felt that we are not as tough as we should be; that people are slapped on the wrist and no more, or people get away with behaviour that is not acceptable.
What is your response to that? Do you think the OSC, for one, has an image problem in this regard?
Mr. Brown: There are a number of questions there. I will try to take them in order.
First, enforcement is an important part of what we do. We are in the course of releasing our statement of priorities for this year, and our first priority is a vigorous, fair and effective system of enforcement. That has been a priority of ours for many years.
Part of the perception dates back many years — and was perhaps solidly rooted several years ago. When the commission was transformed into a self-funded Crown corporation, which was at about the time I joined, there were 39 people in our enforcement area. We now have 94 people in the enforcement area.
The Chairman: What is your budget?
Mr. Brown: Our total budget at the commission is between $55 million and $60 million.
The Chairman: How much of that is for enforcement?
Mr. Brown: I cannot tell you the exact number. However, most of our budget is personnel and approximately 25 per cent of our total staff complement is enforcement. A 25 per cent number would be a reasonable ballpark number.
The Chairman: I apologize for interrupting, but I think it follows from the questions that Senator Meighen was asking.
Mr. Brown: Senator Meighen, there are a number of elements to your question.
Part of the comparison that we hear time and again with the United States is comparing us as securities regulators with the law enforcement agencies in the United States. New York Attorney General Eliot Spitzer is often portrayed as the role model for us as security regulators. It is an unfortunate comparison because he is a law enforcement agent and we are securities regulators.
Senator Meighen: With a political agenda, if I may say so.
Mr. Brown: I will leave that as your comment, not mine.
We realized some time ago that as securities regulators, we could not deliver on these expectations, and that there were indeed some valid and legitimate expectations.
Over the last several years we have done a lot of work with the RCMP. We established at the securities commission four years ago a joint securities fraud task force with RCMP people and securities commission people in the same unit working together. The RCMP now, through the federal legislation that was passed a little over a year ago, has set up IMET teams. As far as we are concerned, those teams are working very well in Toronto. There is a great deal of cross- referencing between the two organizations. We have people seconded to the RCMP; they have people seconded to us. Many cases are now under way.
Therefore, I think that problem is being addressed, but there is a time frame to it. We perhaps got started late, but the cases need to be identified, investigated and then finally brought to prosecution. I think that we are seeing and will see more cases being brought forward.
From the securities commission's point of view, of things that we can work on, we are bringing many cases. I brought some statistics that I asked our people to pull out yesterday. Currently, the OSC alone has 92 matters under investigation. We have another 70 matters that are in the hands of our litigators and are at various stages, working their way through. We have five prosecutions under way in the courts, where we are asking for jail terms for alleged breaches of securities laws. We have 27 files open on issuers, where we suspect they are abusing the creditor-investor exemption. We have a great number of cases that are now working their way through the system.
It is interesting to review how the media are handling these. We are putting out press releases now at a rate of two or three a week on cases that have been commenced, settled or finalized. They are not getting the attention in the press that they did in the early days. Much of this is under the radar screen of the press.
We work with our CSA colleagues and are putting out, on a semi-annual basis, a summary of all of the cases that we have brought across the country, just to try to get some sense of the volume of cases that indeed are being addressed.
The Chairman: On that point, Mr. Brown, this committee likes to look at statistics as well as comments. It would be appreciated if you could give us all of the complaints that you have received in the last one or two years and then, following from that, the number of investigations, the number of prosecutions — which you have given us — the number of investigations launched and then the number of successful prosecutions and so on. We would like to take a statistical look at the amount of activity that you generate, what percentage of the activity has been questioned and how you have dealt with those complaints.
We know from our experience that they are varied — from people unhappy with an investment decision to people with real complaints, where there has been egregious conduct. If you could give us a sense of that, it would help us in our consideration of this issue.
Mr. Brown: I can give you one number that will help you with that, but we will also get you some statistics in printed form that will assist you.
To give you a sense of that, last year we closed 293 files. These were 293 complaints that we believed had sufficient substance to them that we needed to investigate.
The Chairman: Out of a total of how many?
Mr. Brown: We have a contact centre that we monitor, so I can get you the numbers.
The Chairman: Can you give us just a general number so that the public can understand the magnitude of the problem?
Mr. Brown: We get thousands of contacts coming in on a per-week basis. I cannot tell you how many of those are complaints or how many of those are requests for information. Again, we do monitor that and we do have the statistics; I just do not have them off the top of my head. We have quite a sophisticated call centre and a robust tracking system so that we can measure that. I did not bring the information with me.
Senator Meighen: You were referring to the IMET teams, which for those listening are the Integrated Market Enforcement Teams that are part of the RCMP's financial crime program. You mentioned that you had five prosecutions under way. Could you explain the line between the RCMP and yourself? Do you lay the charges; do the RCMP lay the charges? What is your ongoing role if a charge is laid?
Mr. Brown: I apologize. Thank you for pointing that out. I am talking about apples and oranges, so this is an opportunity to sort that out.
We as securities regulators do have a limited ability to bring cases to the Provincial Court. When we think that conduct is egregious enough to warrant a jail term or a fine but is not criminal activity, then we can bring these cases to the courts.
Senator Meighen: Who determines that?
Mr. Brown: That is determined by our enforcement division. Just as the police will determine what types of charges to lay, our investigators, as they are working through a case, can either take it to the securities commission, where we are restricted to protective and preventive kinds of sanctions, or they can go to the Provincial Court if they think that the conduct is egregious enough that a judge would see fit to levy a fine or to impose a jail term.
Senator Meighen: Would that not open you to the charge that you are too easy? Why not just refer it to your commission?
Senator Moore: They could refer it to the Crown prosecutor's office.
Mr. Brown: The next distinction is whether we believe that the activity is a breach of the Criminal Code. The Criminal Code is the exclusive jurisdiction of the police. Constitutionally, it is exclusively the realm of the federal Parliament, but the prosecution of federal offences is for the police forces working with the Attorneys General of the provinces.
The Chairman: Mr. Brown, does the conclusion not lie with your responsibility to deal with breaches of your regulations? You are primarily responsible for breaches of your regulations.
Mr. Brown: That is correct.
The Chairman: It might be the case that, in some instances, a breach of your regulations extends to a breach of the Criminal Code.
Mr. Brown: That is correct.
The Chairman: There are two levels of, in effect, public protection — one against criminal conduct and one against breaches of regulatory standards.
Senator Meighen: Who makes that judgment?
Mr. Brown: The judgment is made by our enforcement division at the Securities Commission. If we get it wrong, the courts will tell us. That judgment is made on the basis of the information that is gained during the course of the investigation. Our prosecutors, who are trained in these areas, look at what they have found and try to determine if this is criminal activity or a breach of regulations. If it is a breach of regulations, then we have to determine whether it is a significant enough breach that we think a court would award a jail term, or the type of breach where we should use our ability to impose protective and preventive types of sanctions, which means removing licences or issuing cease trade orders or reprimands, the kinds of things that we as a commission tribunal can do.
The chair is right. There are really three separate levels here: Criminal activity, breach of a regulation, but is it serious enough that the Provincial Court would treat it as a quasi-criminal matter?
The Chairman: As you know, Mr. Brown, we will hear from the RCMP after this. If you listen to the questions from senators, who are lawyers and very skilled, you can see they are confused, and if lawyers and skilled, experienced senators are confused, what about the innocent public? There is an area that we will obviously want to explore.
Senator Tkachuk: I am not confused. I am not a lawyer, though.
The Chairman: Senator Tkachuk has the ability to never be confused. He knows exactly what is going on.
Senator Meighen: Let me end on this, because I know colleagues want to ask questions.
I cannot help but think, Mr. Brown, that there must be incidents where you are not sure whether indeed it is a matter simply of breach of regulation or is straying into the area where the Provincial Court would find that there had been criminal activity. If you do not have a clear view, which I would assume would happen from time to time, would you then not bring in a Crown prosecutor or somebody and say, ``Here are the facts; what do you think?''
Mr. Brown: We have an enforcement advisory committee. Although we do not discuss specific cases with them, we use them to help us determine policies on enforcement areas. We seek guidance from them as to whether we are generally going in the right direction on some of these things. It is not a case where the Crown prosecutors have been involved. I am not sure that they would welcome being involved. They have very heavy caseloads themselves. They are looking at the Criminal Code, not the Securities Act. It is an issue we have to wrestle with.
One other factor we have to take into account is the types of investigative powers that we use. We do have powers of compulsion, which are really given to us as regulators, not as prosecutors. If we have used our powers of compulsion, that generally steers us towards a commission proceeding rather than a court proceeding.
Senator Moore: Are these enforcement officials on staff or are they outside people that you retain?
Mr. Brown: No, these are staff.
Senator Moore: Are they lawyers?
Mr. Brown: I have the statistics. A large number of our enforcement people are lawyers. The senior people in our enforcement area are lawyers. They are a mix of litigators and corporate lawyers.
The Chairman: Again, on the make-up of that panel, who appoints them or who allocates to them this responsibility? What is the overview of that panel? What happens if there is a dispute within the panel that they cannot settle?
Mr. Brown: There are two types of panels here. Our commissioners are appointed by the province. There are nine part-time commissioners and three full-time commissioners, including me and two vice-chairs. They are the ones who sit on cases brought by our enforcement group. We have an enforcement division. Our enforcement division does the investigation, but it is the prosecutors within our enforcement group who bring those cases either to a panel of commissioners or to the court.
Our commissioners have set as policy the criteria to be used by our enforcement group in determining which cases to take. It is quite a sophisticated scoring system as cases work their way through to determine whether they should be pursued or not and whether they go to the court or to the commission.
The senior people within our enforcement group work with me, because I become involved in those. I am not involved in any of the panels, so I preserve my ability to work with enforcement. The enforcement group and I work through the scoring system and decide whether these are cases that indeed we should be taking, and if so, where we should go with them.
The Chairman: Again, just to sum this up, maybe you could set it out in a chart for us. Somebody complains. The complaint is then vetted to determine whether it appears to be sufficiently egregious to either be a breach of regulation or a breach of the Criminal Code. It then goes to an advisory panel made up of investigators who will choose to investigate some cases and dispose of others quickly. They go through that process of determination and investigation. Then it goes to a panel of securities commissioners, and then it goes to you. Is that the way it works?
Mr. Brown: No, the securities commissioners are not involved in that process. When a case comes in, it goes to our investigative group. Our investigative group does some preliminary investigation to determine whether this is a case that should be taken. There is a group within our enforcement area that determines on a weekly basis which cases should be proceeded with. If they do progress, they go to our litigation group. The litigation group, working with the investigator, starts to prepare the case to determine whether there are witnesses who can prove the case, whether the evidence is there, and they go through the documents.
Again, as that process progresses, a group within that department assesses whether or not to bring the case forward. It is not until it is decided to bring the case forward and, indeed, bring it to the commission that a panel of commissioners gets involved. They are the last stage, not an intermediate stage.
Senator Massicotte: I was not here for all of your presentation so perhaps this has been asked. On this particular point, obviously the concern is someone is both the judge and prosecutor. I believe that the Crawford report recommended a separation of those two responsibilities and I thought the OSC had agreed.
Mr. Brown: Let me give you the chronology. The Crawford report recommended that the government consider this. They did not make a recommendation one way or the other.
We asked a group to come together, chaired by a retired judge, Mr. Justice Coulter Osborne, to look at this issue for us. They said there is a perception in the marketplace there that could be bias with the structure we have, with our commissioners being the board of directors that directs the policy of the commission, which would mean directing the policy of enforcement and at the same time sitting as panellists.
This matter was brought before the Standing Committee on Finance and Economics of the Ontario legislature. This is an all-party committee. They made a recommendation that, first, the government get on with establishing a national securities commission and make that their number one priority. In the course of that, they should design a commission with a separate tribunal rather than one that is integrated.
Second, if after a year the government is not making much progress, they should turn their attention to whether or not the tribunal should be separated from the OSC. We have been working with the minister on that. The principal model in Canada is for an integrated tribunal where you have a regulatory authority. The law societies and the medical disciplinary panels are all integrated tribunals. It is the way the system is set up in Canada. That is not to say that we should not be looking seriously at separating the tribunal.
All of the commentators are quick to point out that nobody has found real evidence of bias. They are just worried about the perception and whether that will cause people not to have confidence in the system.
[Translation]
Senator Plamondon: I would like to discuss your mandate to protect consumers.
I am not a lawyer; before becoming a senator, I was a consumer advocate. Having sat on the Bureau des services financiers du Québec and other bodies, I know that everything depends on client-broker confidence. That depends on all of the know-your-client rules. Once these rules have been appropriately followed, the investor authorizes his broker to invest. Transactions follow and then there is the disappointment, as you heard during the town hall meetings. Do town hall meetings need to be held throughout the year so that you become aware of the disappointments experienced by the investors?
It takes a while before a consumer knows where to turn. You yourself said in your presentation that this system is fragmented and complex.
According to Mr. Lauber as well as other ombudsmen who appeared before us, the individual experiencing a problem begins by filing a complaint within the sector; this is then forwarded to the ombudsman, in this case, Mr. Lauber. However, time marches on and the two-year cut-off period has almost expired. Let us suppose this happened at your outfit. Does the financial services ombudsman, Mr. Lauber, send you many complaints of fraud? Do they have the authority to determine that there has been fraud and to forward it to you?
Once a complaint has been filed, either with the office of the ombudsman or with you, would you agree that the cut- off date should be suspended? At that point, the consumer could, in all confidence, wait for the inquiry to take place. That is the first thing. That is what is most important.
Do you also ascertain whether or not the know-your-client rule has been followed? If that were so, we would not have all of these problems and the authorizations would be clarified. Right now, consent given by the consumer is based on trust but not clarified. Consumers do not know what they are committing to and they do not understand the risk. They give all kinds of authorizations to a broker who is in a hurry to make the transaction.
[English]
Mr. Brown: Let me start with those questions in the reverse order.
The third question had to do with the know-your-client rule. Another way of expressing it is the suitability rule. It is clear across the country that brokers and advisers have a positive obligation to determine that investments they are recommending to their clients or buying or selling for their clients are appropriate for those clients. This means they need to know not only the nature of the investment, but the client's circumstances and objectives.
Probably 50 per cent of the cases that we deal with involving small investor issues have to do with performance under the know-your-client or suitability rule. It is an issue that we and the SROs take very seriously. Those rules need to be reviewed and there will likely be some changes that we must make. We have been working with the industry and our regulatory colleagues across the country on a proposal called the fair dealing model. The principles of it are that the dealers need to clarify the relationship with their clients so these issues are also clarified much better at the time an account is opened. We agree that there needs to be work done there.
In the meantime, we are ensuring that the SROs who review their members' conduct on a periodic basis focus on that to ensure that that obligation is being complied with.
Second, consumers' confusion in trying to seek redress is a very valid part of it. It is one of the reasons why we had the town hall meeting and ensured that we had Michael Lauber, the ombudsman, the chairs of the MFDA, the IDA and me on the stage. Depending on the circumstances, one or the other of us would have primary responsibility.
When listening to the investors, we realized this was a confusing array. The very fact that there are 500 people in the audience and four people on the stage is enough to cause confusion.
We heard that people either did not know where to look in the system, or knew but did not trust it. People had been told by friends or colleagues not to waste their time because they would not get their money back. We have two issues to deal with and we have to simplify the system so that people will know where to begin to look for answers.
Mr. Michael Lauber, Ombudsman for Banking Services and Investments, thinks that people should start with his office, but there are constraints as to far he can take something because he cannot offer advice or be an advocate. We need to figure out whether to have someone play the role of advocate and adviser to direct people appropriately through the system.
Senator Plamondon: Someone who could help.
Mr. Brown: The OSC is aware of that and is looking at models in other jurisdictions. One model in Australia looks quite interesting, in that a group superimposed between the broker and a client when a dispute occurs helps the client work his or her way through the system at the broker's expense.
On your third question, as I mentioned, we heard comments at the town hall about the two-year time limit. We had not heard about it until a couple of weeks before the meeting. That is one reason for the need to hold town hall meetings regularly so that these issues can surface.
The two-year time limit in Ontario pauses if during that period the investor seeks arbitration or goes to court. It is not 100 per cent clear whether it pauses if the investor goes to the ombudsman, on which the ombudsman is seeking legal advice.
The time limit does not pause if the investor comes to us.
Senator Plamondon: It does not?
Mr. Brown: No. Again, these issues need to be addressed.
The Chairman: To be fair, Mr. Brown, you raised that issue and it is a matter of provincial jurisdiction and not for us.
Mr. Brown: It is a matter of provincial jurisdiction. I should say that all but three provinces have moved to a two- year time limit. Although this is surfacing in Ontario, we understand that the issue is being raised across the country, with the exception of three provinces.
Senator Plamondon: Even though it is a matter for the provinces, it is important for the consumer to be aware of it. Investors want to know how much time remains to seek redress or take other necessary action.
Where in the mandate of the OSC does it state a requirement to protect the investor?
Mr. Brown: The OSC has a dual mandate: to provide protection to investors and to foster confidence in the Canadian capital markets. In respect of the investor protection mandate, as I said at the town hall, we have spent most of our time looking at the transparency of corporations, corporate governance, the audit function, et cetera. Perhaps we have not spent sufficient time looking at the relationship between the investor and the financial intermediaries because that is the area eliciting the greatest number of complaints.
Senator Plamondon: Would you agree that any fines levied against brokers should be put into a kind of trust fund for more frequent town hall meetings to better serve more people?
Mr. Brown: We are happy to finance the town halls from our general budget because they are not large expenses for the OSC.
The money that we receive from settlements and fines goes into the OSC's investor education fund. It is one of the most, if not the most, sophisticated investor education portals available. The OSC will continue to fund that because a big part of our investor protection mandate is to try to help educate investors.
Senator Massicotte: You mentioned that people do not know where to go for help and that they do not truly trust the existing system. You also mentioned a model in Australia that the OSC has been looking at. To be clear, would you deem it dangerous that the party intermediary, who has a stake, also has the authority or the mandate to state the fine and remediate the decision as opposed to simply giving advice? Would you propose such a system?
Mr. Brown: We have not thought that far into it, and we do have the Ombudservice in place. It has applied only to the securities aspect of the financial markets for a little less than two years. We are still determining how effective the Ombudservice is.
As well, the IDA has administered an arbitration system for a number of years. The IDA does not provide the arbitration panels, rather, that is done by a separate, private court. However, the two systems are in place. The OSC has heard that they do not operate or interact as effectively as they could. We need to determine whether the two systems could be made more effective before we decide whether to scrap them and superimpose other systems.
Senator Tkachuk: I would like to follow up on Senator Plamondon's line of questioning. First, I have background questions. I went to a lecture yesterday at the University of Ottawa on CFO Certification. A gentleman from Cognos spoke to the cost of being prepared for issues under Sarbanes-Oxley. He provided the expense figures for banks and other institutions doing business in the United States for such preparation. It would seem that the existing legislation is geared to the entrepreneurs. What is the total trade in dollars annually at the Toronto Stock Exchange?
Mr. Brown: I believe that it is approximately $1.3 trillion.
Senator Tkachuk: Of that amount, what was the total fraud in dollars last year?
Mr. Brown: I cannot give you that figure off the top of my head because I do not know it.
Senator Tkachuk: How many years ago was the Bre-X scandal? Was it 10, 12 years ago?
Mr. Brown: It was close to 10 years ago.
Senator Tkachuk: Of the total dollar value of trades last year, how many incidents were there of criminal activity? How many incidents were there of a person not filing a report, which is not a criminal act? The point is, if enough legislation were passed we could keep thousands of people busy, but it would not mean that the system would be any better. I am not saying we are overreacting, but I would like to know the numbers to be certain of that. Employees at the base of the pyramid are able to steal, too.
Mr. Brown: The OSC has put investor confidence measures in place. We put these measures under ``investor confidence'' because we wanted to get a good start on the problem when there was such a serious hit to investor confidence after the tragedies in the United States. Some of that had spilled over into Canada. The measures are not limited to fraud.
The Chairman: Excuse me, Mr. Brown, Bre-X predated Enron by at least one-half decade; and there are others.
Mr. Brown: My point is that many measures put in place by the OSC are not designed to protect against fraud only, but some of them might have resulted in an earlier detection of fraud had they been in place.
We understand that people who are bent on committing fraud can be devious and very smart.
What we are looking at in a much broader picture with these measures is to improve transparency, to improve the quality of information both in the marketplace and that the senior players are getting in their corporations.
I know there have been a number of comments in the United States about Sarbanes-Oxley and whether it has gone too far. As you know from the press, there is a new chair of the SEC and nobody knows where he is intending to go on it.
We have had our own town hall meetings of the major players, not of the investors. We have had three of them in the last three years, where we bring in the CFOs, the CEOs and the chairs of audit committees to talk in a forum about these issues. We had one just a few weeks ago dealing with internal controls, which is the last and most controversial piece.
We had people there who have complied with the U.S. rules already, people from the major banks. They all will say, ``It has been very expensive, but we are glad we did it. We thought we had some of the most robust systems internally, and we were quite surprised at what we found when we went through it.''
We are hearing from those who have not had to go through it yet that it will be prohibitively expensive. We are hearing from those who went through it that it was expensive, but they found it worthwhile.
Senator Tkachuk: That is nice. Will you try to get those numbers for me on the percentages? I am trying to find out, for my own benefit as well as other senators', how serious the problem is as a percentage of trades and dollar volume.
Entrepreneurs are risk takers. They are not necessarily bookkeepers or lawyers. They hire lawyers and accountants. When they go public, they have chartered accountants. Most of them are honest — not all of them, but probably no different from the rest of the population.
Then we have the industry itself — the brokers, the brokerage houses and the mutual fund operators — and the investor. All these people in between are lawyers and accountants. It is the businesses that are bearing the expense — the corporations and entrepreneurs creating the wealth are bearing the expense.
Meanwhile, what is our solution? It is another bunch of accountants; every quarter you are doing an audit. The same people who caused the problem are more involved in solving it.
How did all those research people, research banks and brokerage houses miss what was going on? That is what caused the problem. It was not Bre-X. Those were people who intended to run around the system and perhaps do criminal acts, but every researcher and brokerage house in Canada was touting Bre-X and selling it. Who there went to jail? Which brokerage house was charged and someone went to jail, which broker, which bank? What happened in the States? Why did none of those brokerage houses or researchers pick up that these people were crooked?
Mr. Brown: Let me talk about Bre-X, since you raised it. Bre-X was a Calgary company that got listing on the Toronto Stock Exchange and in the United States and had no businesses in Canada. Its businesses were all in Indonesia. No police force or law enforcement agency has charged anybody involved in Bre-X with anything. We are the only regulator in the world that has a case ongoing in the Bre-X matter. There are other instances where we are the only ones who are still pursuing some of these matters.
On your point about the entrepreneurs, there is an important distinction to make. By and large, our rules do not affect the smaller companies. We deliberately have proportionate regulation here. We recognize that the cost of complying with some of these rules would be prohibitive for small companies. Most of the rules that you are talking about do not apply to small companies or to companies on the TSX Venture Exchange, where the vast majority of them are listed.
Most of the rules that you have talked about apply only to the larger companies, which are listed on the Toronto Stock Exchange. There is an attempt to try to do this in a proportionate manner. We recognize that with the larger companies, because of their size and frequency of trades, if there is a problem, there is a potential for serious losses to investors and even systemic risk. That is why we focus on them.
Senator Tkachuk: I get frustrated by the emphasis on the companies and the business people and what I think is a lack of emphasis on the people advising the clients to get into the system and the system itself. There had to be a lot of brokers putting people into Bre-X, for example. It never made a dime; it had no revenue, ever. It was a speculative stock that went from zero to more than $100 a share. There were no lights going on in the heads of the people who were investing in this stock, including mutual fund managers? Were there no researchers saying there was a problem here? How did all these people get into this investment and how did this entire scam happen? Promoters promoted this stock, knowing they had no evidence of anything.
Senator Massicotte: Senator Tkachuk, how much money did you lose there?
Senator Tkachuk: I never put any money in.
The Chairman: Senator Massicotte, we have an agenda to deal with and this is a fundamental question because it goes to the issue of whether or not there is consumer confidence in the system. It is at the heart of what we are looking at here, consumer protection and confidence.
Senator Tkachuk: My point is that the companies and the business people are taking the rap, but it should be taken by the industry itself, which failed the legitimate investors in the system. How are we trying to address those problems? Town hall meetings with investors are fine, but so what? How do we upgrade that particular part of the industry so that investors have some confidence that what they are hearing over the telephone makes some sense?
Mr. Brown: I think we are dealing with two different ends of the spectrum here.
The town hall meetings are designed to assist investors who have complaints against the financial intermediaries within the system. Essentially, those investors are looking for restitution where they believe that their trading instructions have not been followed or they were put into unsuitable investments. That is at one end of the spectrum, and we have talked about some of the issues we are following up on this.
The area that you are talking about is at the corporate level as well as at the dealer level. At the corporate level, we have a number of rules in place now that are designed to prevent another Bre-X. Mining disclosure standards were put in place within a few years of Bre-X, and they have just been updated again. We think we have the most robust mining disclosure standards in the world. The TSX will tell you that they are now becoming the exchange of choice for mining corporations around the world.
We have also put in place governance and auditor independence requirements. We have done a lot of work focusing on the auditors. We have an entire new focus on analysts, because as you say, there were questions about where were the analysts when this happened.
We have worked internationally for a new code for credit rating agencies, which is now in place. We have been addressing the kinds of issues you are talking about, not just focusing on the companies but all of the others who played a role and who could have been gatekeepers at the right time, but have not been. We are indeed addressing those issues and trying to fix each of the pieces of the system that could have contributed to some of the problems that you are talking about.
Senator Tkachuk: I do take offence, Mr. Chairman, at another senator thinking I would have a personal axe to grind. I do not. I never did invest in the shares. I was interested in what was happening to consumers. I take offence at that.
The Chairman: I think it was a jocular response.
Senator Tkachuk: I am sure it was a jocular response.
The Chairman: I am sure Senator Massicotte will withdraw it and we can move on.
Senator Massicotte: I withdraw it.
The Chairman: Mr. Brown, Senator Tkachuk raises a real issue here. It seems to us and to him that there are insufficient checks and balances within the system. Our question to you is are there appropriate checks and balances being put into the system to make sure that the desire for revenue is balanced by protection of the consumer and the legitimacy of or belief in the system as a whole? It is a fundamental question. Frankly, I think his concerns are shared by all members of this committee and the public. Are the checks and balances being put into place speedily enough? We sense there is a lag here.
Mr. Brown: I think you focused on the most important issue that was exposed most graphically with Enron, WorldCom and some of the failures we had here. The checks and balances that we had all thought were there to protect investors did not work. One by one, they failed. We have systematically tried to identify those and put in place enhancements to those checks and balances that I believe are now working. Most of those are now in place. As I mentioned, we have new rules for auditors and audit committees. Audit committees must now be independent. The auditors must be independent. The auditors must report to the audit committees, not to the CEO and CFO. The CEO must personally certify that the financial statements are correct and are a fair representation.
The Chairman: Mr. Brown, those are all related to the corporations. We are talking about the checks and balances within the securities system on advisers to investors. Are the checks and balances within the securities system itself adequate? For instance, there is the conflict of a researcher in a corporation where he is, in effect, advising on a stock that his company is selling. Are there checks and balances within the system, not just with respect to Sarbanes-Oxley? That is our focus at this moment.
Mr. Brown: We have indeed put in an entire new set of rules with respect to research analysts, their independence and their relationships with the dealers, to not only try to eliminate some of the conflicts of interest but to ensure that all such conflicts are identified, and to the investor. Yes, the first answer is a new set of rules that deals with research analysts has now been in place for over two years. We have also coordinated that with the United States to ensure that ours are as robust as theirs.
The Chairman: What about advisers?
Mr. Brown: Advisers is part of where we are at now. It is part of this phase that I mentioned to Senator Plamondon that we are now working through to ensure that the customers understand their relationship with their advisers and what the advisers are doing for them, and to ensure that the advisers understand. That is part of the ``know your client'' and the suitability rules. We have processes now under way to ensure that those are more robust.
Senator Plamondon: As a clarification, I thought it was the OSC, but it was the Canadian Mining Association that asked for an inquiry into Bre-X. Is that not so?
Mr. Brown: I am afraid that is before my time. I do not know. I do know that the new mining rules were put in place through a joint effort by the Toronto Stock Exchange and the Ontario Securities Commission.
Senator Plamondon: At the demand of the Canadian Mining Association?
Mr. Brown: It could be. I do not know.
Senator Moore: The chairman asked about your budget. You said it was $55 million to $60 million per year. What is the source of those revenues?
Mr. Brown: All of our fees come from market participants. We have a fee schedule where we collect about 70 per cent of our revenue from so-called participation fees. Issuers who rely on the Ontario market for their capital needs pay us a participation fee once a year, and it is a percentage of their market capitalization. Mutual funds pay us a percentage of the assets they have under administration, and dealers pay us a percentage of their total revenues. That accounts for about 70 per cent of our budget. The remaining 30 per cent is activity fees, where we charge for the actual services that we provide. Somebody files a prospectus with us, and we charge for the time it takes us to review and vet that prospectus.
Senator Moore: I was interested in the comments of Senator Plamondon with regard to the two-year limitation period. If that window was increased to three, four or five years — and I note you said that you suggested to the Ontario government that they would be well advised to take another look at it — do you think you would have more cases? What percentage increase would there be, if any, if people knew that they had a longer time to process their complaints?
Mr. Brown: There is a bit of a dichotomy. Investors are saying they do not trust the system and would not use it anyway, yet they are asking for more time. I think there would indeed be more cases. I think there are cases where investors have realized too late that the limitation period has worked against them. Indeed, we would see more cases if the period were extended. It used to be a uniform six years across the country. It is now becoming a uniform two years. The question is whether it should go back to six years.
Senator Moore: If there is a longer period, would that not help you and your staff in terms of the quality of their investigation?
The Chairman: Our investigation is not limited. Our investigation can still last six years. It is only private rights of action between investors that are limited.
Senator Moore: How long does it take to complete an average case?
Mr. Brown: We have been systematically shortening the time period. We are now well under a year to bring a case. That has not always been the case. We are trying to shorten that even further.
Senator Kelleher: Mr. Brown, you mentioned that you have to work closely on certain cases with the RCMP. I do not want this to be taken as an implied criticism of the RCMP, but do you feel the RCMP currently have adequate resources to fight white collar crime?
Mr. Brown: I am glad you put the question in the present, because I do believe that at the present time the RCMP are well resourced. They may feel that they need more money, and I will leave that up to them. From our observation and the work that we do with the RCMP, we are very pleased with the level of activity and their ability to respond to cases that we bring to them that we uncover in the course of our investigations.
Senator Kelleher: I understand from other sources that when various companies in the marketplace try to go to the RCMP with instances of white collar crime, they are told by the RCMP that they do not have sufficient resources. What do you have to say about that?
The Chairman: To amplify that, we heard a witness earlier who suggested exactly that. He was not able to get redress. This committee was criticized for not giving him ample time to make his case. I want to assure him and you that it is a concern of ours. Senator Kelleher is raising an important question about allocation of resources.
Let me correct something here. As I understood it, the quantum that you say is allocated roughly to, in effect, prosecutions is about $20 million of your total budget; is that correct?
Mr. Brown: That is right.
The Chairman: Listening to what Senator Meighen said, if we take a business that is $1.3 trillion a year and add up the two major consumer protection mechanisms in place to research this, we have $30 million now annually that has just been given to IMET — and we will hear shortly from the RCMP — and we take your $20 million, that means $50 million is allocated for a $1.3-trillion activity. That is a distorted number, because 1.3 trillion is the total quantum, but the percentage of revenue to the industry has to be quite considerable. I am not sure what that number was. Even if we took it to be a considerable number, it would be a small fraction of the total revenues of the securities industry that is allocated to the defence of the consumer. It is a more amplified question than that of Senator Kelleher — and forgive me for amplifying it. Please respond to him and then respond to that.
Mr. Brown: In response to Senator Kelleher, our interface with the RCMP is not the total spectrum of white collar crime. It is only those aspects of white collar crime that affect the capital markets. That is weighted largely to market manipulation, insider trading cases and those kinds of issues. As I said, we have at this point no complaint with the ability of the RCMP to respond to and handle the cases. We are working quite effectively with them in a joint venture. That is a somewhat narrower perspective than you are looking at, senator, and I cannot comment on it beyond that.
The Chairman: What about your own budget?
Mr. Brown: In regard to our own budget, we believe we have an adequate amount allocated at this point to enforcement. I should also mention that in adding up the total amounts in enforcement, you need to look at the other securities commissions across the country. They have enforcement budgets as well. I cannot tell you what the numbers are. They will not be as large as ours. My suspicion is if you add them all up, you will probably get a number cumulatively that is about equivalent to ours. Then the SROs, the IDI, the MFDA and Regulatory Services Inc. are participating as well. The numbers, while perhaps not as large as you would like to see, are larger than you suggested.
We are indeed regulators. Our focus here today has been on enforcement and consumer redress, but we are a regulatory agency. We have to regulate the markets and provide a platform whereby entrepreneurs can access the market, corporations can raise capital and it will be attractive for investors. Although we focus on the enforcement side of it, when we look at Canada's place in the world, we do not see that there is a Canada discount, if you like. We hear and see from foreign participants that they find Canada has its act together and is not a bad place. When we put it in that perspective, we may not be far off.
Senator Kelleher: I think I am correct in saying that thankfully, you are a supporter of a single regulator for Canada. I have two questions that flow from that. First, could you give us the status as to what is happening in that regard? Second, assuming that you and I are correct, that a single regulator would be helpful, how helpful do you feel this would be in dealing with the complaints that we are telling you about today?
Mr. Brown: I will start with the first question, on the desirability of a national regulator. I am clearly on record as believing that a single national regulator for Canada is an absolute essential. The press often say we are the only developed country in the world without a national regulator. I believe we are the only country in the world without a national regulator.
The Chairman: The OECD says the same.
Mr. Brown: I think we are lagging quite far behind there.
We have a system that we can make work only through the goodwill and resources of the various commissions across the country. We make it work. We do a significant amount of work behind the scenes, but we cannot, no matter how hard we work at it, create a regulatory system that is efficient in terms of cost, timing and reaction time. We cannot do it with that many players. I think the time has come, and indeed passed, when we need to wrestle with those issues.
There is a great deal of political will, both here federally and in the Province of Ontario, to make this happen, and discussions are continuing with other provinces across the country. My own view is that we are making more progress than we ever have before, but it remains slow. I tell people that I think that we have passed the point of no return, and now it is a question of when and how and not whether.
Senator Kelleher: Assuming that this comes into being, do you feel this will be helpful in resolving many of the complaints that you are fielding today?
Mr. Brown: I think it would be helpful in many ways. Many of these complaints are local, and they will still, even with a national regulator, be handled at the local level. They will be handled through the local office of the securities regulator.
I would anticipate that, with a national regulator, we will have uniformity and much less confusion and fragmentation for investors. Investors now invest across provincial borders. Torontonians invest in Western companies and so on. A national regulator will help to relieve that confusion.
As I said in response to Senator Grafstein, money is being spent on enforcement across the country. There is some coordination, but if that money were in a single pool directed by a single regulator, I think it would be more effectively employed.
Senator Meighen: If one national regulator is the ideal solution, how close to ideal would be one in Quebec and one in the rest of Canada?
Mr. Brown: It would be two regulators instead of 13, so mathematically we are going in the right direction. Realistically, if we see some movement, it might well be that the provinces other than Quebec would form a regulator together.
I think that the interface between a regulator in Quebec and a regulator for the rest of the country could be worked out and made to work quite smoothly. It would be much easier than trying to work the interface that we have now. It would be an improvement. I do not think it would be the ideal, but it would be a positive step toward the ideal.
Senator Fitzpatrick: Mr. Brown, I am sorry I was not here for your opening remarks. I did want to ask you for a comment more than an absolute answer. I have a significant amount of difficulty with the balance between establishing a code of conduct or an ethical code within industry and the reliance on rules and adherence to rules, whether it is the Ontario Securities Commission or the stock exchanges. Bre-X was mentioned, and you spoke about the new requirements for disclosure of mineral resources. I think it is important that the rules for that disclosure be better defined.
You can still be a crook and defraud investors and your own company employees.
Right now, my understanding is that the Toronto Stock Exchange contracts out the examination of those rules with respect to mineral resources. If, for example, a consultant or your own company has established a mineral resource, they have no way in which they can discuss those resources with the compliance department. Maybe we are going too far the other way. I am not sure that there is an absolute answer to it but I would like to have your comment.
I applaud you for the information that you are providing to the public, but it seems to me that more attention should be paid to the calibre of the people we are dealing with and those requirements, rather than relying upon rules that can be bent or broken.
Mr. Brown: Senator, you started by talking about balance. I think you have hit on the most important part of this. A system that has only rules is fraught with danger. People will find ways around the rules. A system based only on a code of conduct or principles is also fraught with danger because you can never enforce it. You need the certainty to enforce it.
We have looked at how some of our rules came about. By and large, it is pressure from those who have to comply with whatever the principle is. They want to know what they have to do. They want to know with certainty whether they are on the right side of the line or not.
I think you do need a balance. You need to be able to articulate the principle so that somebody can understand it and have some idea as to where the margins are. However, you need to supplement it with guidelines, rules or whatever so that people will know with some certainty, when they are working within the structure, whether they are on one side or the other; and so that we will be able to enforce it. When we are enforcing, we have to prove in a court, either beyond a reasonable doubt or on a balance of probabilities, that this conduct is inappropriate. We need some tests. I think the balance is right and we have to continually work at it.
On your second point, about who is looking at this, I cannot speak for the Toronto Stock Exchange, but we have internal mining expertise at the commission. When mining prospectuses and documents are filed, our own internal mining experts look at them. We will supplement that if we need to, but not by outsourcing; we will bring people in to work with us.
Senator Fitzpatrick: Is there a rapport between the company — the entrepreneur — and the commission with respect to interpretation of the rules or defining a resource?
Mr. Brown: Very much so; companies often pre-file materials with us on a preliminary basis to get our reaction or advice. There is that dialogue back and forth.
Senator Fitzpatrick: You believe that is important.
Mr. Brown: Absolutely.
Senator Massicotte: If you look at the OSC in the last several years, it has been much more proactive, probably as a result of your personal efforts. I think you are going in the right direction.
One of the ways to effectively manage a corporation is through its board. You have adopted guidelines — I think 13 or 17 guidelines — that basically serve as a direction for all corporate leaders in how to provide better governance. There is also the debate consistently going on as to the limited ability of shareholders to express their own wishes. As you know, the SEC has had this long debate; they had a panel, went back and forth and then retracted. Many shareholders feel they are not being well heard or the board does not represent their wishes.
In the United Kingdom there is provision for an advisory vote on compensation for executives that is not binding, and so on. Is there some progress we should be or could be making to ensure shareholders get a stronger say and that the board represents their interests, as opposed to being too friendly to management?
Mr. Brown: These are not matters that currently are very high on our radar screen. That is partly because the debate is raging in the other jurisdictions. There has been no clear direction one way or the other.
There are some things that we have been doing and will continue to work on. For instance, we now require mutual funds to identify their investments. We require companies to disclose the results of votes at the board. I understand those are tiny steps.
We are not currently focusing at the securities level on giving shareholders more power. The Canada Business Corporations Act was recently amended to allow major shareholders to talk to one another and not run afoul of the proxy rules. The Ontario government has announced that they are looking seriously at that and intend to bring in a package of legislation in the fall to address that and some other issues.
The Chairman: We have heard complaints about huge amounts of compensation approved by so-called independent boards, way out of keeping in terms of the relationship to the stock price. You have heard them as well. It is in the business pages every day.
It strikes us, and I assume that Senator Massicotte is saying this, that this is a matter for regulatory and governance concern. Ultimately, the public looks to the regulator, not the internal corporate mechanism, for some redress on this. This is a raging debate in Australia, Germany, France and England, but we do not sense it here. I do not want to put words in Senator Massicotte's mouth, but it is certainly my view that this should be a matter of high priority for the senior regulator in the country. Senator Massicotte, forgive me, I hope I did not misstate your view.
Mr. Brown: You mentioned two of the regulatory forces that we think are in place. One is at the governance level itself. Our focus has been to ensure that the governance level is robust. Our guidelines now require a compensation committee that is totally independent of the management or the board.
We have looked at making sure that robust governance systems are in place that are independent of the CEO; but recognizing that if we do indeed have an independent board and compensation committee, we are relying on their business judgment in making those determinations.
We also rely on transparency. We have rules in place that require disclosure of compensation. We have just addressed parts of that, particularly with respect to pension plans, to ensure that costs that heretofore have been hidden in the area of pensions are now transparent.
We are looking at a combination of governance and informed market forces to bring the kinds of pressures to bear that you are talking about.
Senator Massicotte: Just to make a comment on that, I am sure we all read the same articles. Even in regard to compensation, it is not very clear whether you report on a paid basis or on an accrued basis. One firm, I believe it was CP or CN, basically got a better deal. It is very hard to understand the total compensation of individuals because options are reported on an as exercised basis.
The only comment I would make to emphasize the importance of this is, if you look at polls of consumers or investors, the confidence in business leaders is down quite a lot. They say there are two reasons; one is the Enrons of this world, but also the average investor perceives there to be an exaggerated compensation scheme. I agree with the approach of delegating authority to the board, but we have to ensure that they also reflect shareholder views and not only their closeness to the management, which is, obviously, typical.
Mr. Brown: There is one point I forgot to mention earlier with respect to options reporting. We are ahead of the United States here. There has been a huge debate in the U.S., fuelled by Silicon Valley, on options reporting. It is a bit up in the air as to whether they will follow through with the rule they have in place.
We now require expensing of options in Canada.
The Chairman: Mr. Brown, I have a final question. We have come to grips with the question of the slowness in creating one securities commission. There is a general view around this table. The federal government has been on this case now — I myself have been involved — for over 40 years, and we are not much closer to having one central authority.
Our other option, where the progress is slow but sure and hopefully inevitable, is to accelerate the creation of a central prosecution mechanism, because we can clearly do that under the Criminal Code. We are about to hear from IMET about that.
What is your view of a central, federal prosecution mechanism, armed with information from the various securities commissions and exchanges such as yours, and supported by these task forces so that there can be a greater focus?
Mr. Brown: I am not sure I understand how you would see things differently. The RCMP is a federal law enforcement agency. I would have thought that that at least fits part of your definition of a central authority.
The Chairman: It does.
Mr. Brown: Are you talking about having the federal Attorney General take over responsibility from the provincial Attorneys General for the actual prosecutions?
The Chairman: I am talking about a more centralized prosecution mechanism. I am not suggesting it should be the Attorney General of Canada, but it should be a central mechanism by which the federal government coordinates with provinces, because we do have federal and provincial prosecutors dealing with the same laws. The province can exercise its right to prosecute a breach of the Criminal Code, as can federal prosecutors. In some instances, they share responsibility. The issue is to bring all the expertise together in one place so that, as you say, it is cost-effective.
Mr. Brown: I can answer your question by telling you about our experience as securities regulators. A few years ago, our enforcement people across the country rarely got together. When they did, it was through a telephone call lasting several hours. Our enforcement people now meet very frequently. They get together for two days and invariably run out of time because of the number of issues we are now coordinating across the country. It is one of the reasons the drive for a national commission is so important. We are finding a greater need to coordinate across the country.
If that analogy helps you in your own thinking, I believe that could help.
The Chairman: I think you have gone as far as you can. Thank you for that.
Mr. Brown, we want to commend you for your efforts in Ontario. We understand the complexity of the problems and the need for harmonization. This committee is studying productivity, and we think the failure to create one securities commission inhibits productivity in this country. We urge you to continue your battle, notwithstanding the fact that you are leaving your official responsibilities. You have been a voice of sanity and leadership in this battle to bring the political will to bear on solving some of these systemic problems. We wish you well in your future career.
Thank you, Ms. Dey, for coming as well. You have been silent but articulate.
We will now hear from the RCMP, a chief superintendent and director general of a special task force dealing with white collar crime and fraud, which relates as well to the securities industry.
We are delighted again to welcome Chief Superintendent German and Superintendent John Sliter. They gave evidence previously. We have asked them to come back for questions and answers. We know the extent of their testimony from their previous appearance. This is an ongoing study, as you know, of consumer protection issues within the financial sector.
You have heard our concern about whether two issues have been properly addressed to make the financial sector of the Canadian economy not only efficient but also fair and equitable. The two issues are lack of centralization, about which we have heard today, and lack of resources.
Perhaps the senators will be asking some questions, but you might respond to those. Should we have a central commission and should we improve the quantum of dollars allocated to you?
You told us last time, Superintendent German, that you got your $30 million and you are well on your way to using it, but you have not had a chance to adopt it. Our concern, and you heard it earlier today, is that we have a $1.3-trillion industry. If you look at the allocation of resources to protect the consumer from egregious criminal conduct, it is less than one tenth of one tenth of one per cent.
It is small in comparison. The numbers we have heard are $30 million for you, $20 million for the Toronto Stock Exchange and a similar number for all the other stock exchanges. Therefore, the total amount of money available to defend against egregious conduct in a $1.3-trillion annual business is $70 million.
The first question I would like to ask you is, is it enough?
Chief Superintendent Peter M. German, Director General, Financial Crime, Royal Canadian Mounted Police: Thank you for having us back, Mr. Chairman. We really appreciate the opportunity. We enjoyed being here the last time, and I am sure we will enjoy this occasion. We will try to help you out as much as we can. We appreciate the focus of this committee. We all want to go down the same road.
I have to give you some context before I answer that question. In your introduction you mentioned that we are responsible for a particular task force. It is a little more than that, and that is where the complexity comes in.
I am the Director General of the Financial Crime Division. There are three specific branches that come under my responsibility. One is traditional commercial crime. This branch covers the gamut. For those who might not be familiar with the subject, it includes everything: counterfeit currency, corruption investigations, corporate fraud, securities fraud, telemarketing fraud, frauds against the federal government, frauds against the provincial government, general frauds, identity theft. It covers the waterfront.
Another area is money laundering enforcement, the Proceeds of Crime Branch, which is closely linked with organized crime. This branch is responsible for following the money trail and trying to recover the profits of crime. The third and newest area is the Integrated Market Enforcement Teams, which are a post-Enron development in Canada.
The dollar figures you are talking about are in relation to the IMET component. There is a dollar component for the proceeds of crime and another for commercial crime.
The Chairman: These figures are all related to IMET?
Mr. German: Yes. The $30 million is for an integrated partnership with the Department of Justice. The RCMP component is roughly two-thirds of that, so it is about $20 million for the IMETs. I understand that your concern is not necessarily the high-end corporate fraud. You are focusing more on investor issues that would probably come under the domain of the commercial crime section, the unit that is trying to cover the waterfront.
To give you some global figures, we have approximately $100 million dedicated to financial crime in the RCMP in those three areas. Roughly $40 million is allocated for proceeds of crime investigations and about $20 million goes to the IMETs. That leaves about $40 million for the commercial crime branch, and we can break that down further for you if required.
In regard to the corporate governance issues, I did state on the last occasion that the IMETs are into their third year of a three-year implementation process. We are now waiting for approval from Treasury Board for the implementation of our final teams, at which point we will be up and running at full capacity.
I am heartened to hear from Mr. Brown that he is happy with what he sees so far in the IMET component. We are pleased with it as well, but everything has its growing pains. Nothing is perfect, and we are working as hard as we can to make it effective. After it is up and running at the end of three years, we will want to assess whether it is properly resourced.
However, that is a completely different question from where the commercial crime branch is at now.
[Translation]
Senator Massicotte: I am pleased to see that there are adequate budgets. As a businessman, I see a lot of shady practices such as money laundering and tax evasion. Personally, I fear that these numerous illegal practices will result in citizens distrusting the business environment and our legal system. The number of such transactions is much greater than we think.
Could you assure us that you are dealing with these very widespread problems? If so, what problems are you coming up against and how do you deal with them?
[English]
Mr. German: We are more than aware of the situation. As I mentioned the last time I was here, it is a target-rich environment for us. We have many more complaints coming to us than we can possibly handle. That is the nature of fraud investigations, I am afraid.
We have a fairly sophisticated system, much like the OSC, to try to distil those that we can effectively investigate. Most of the complaints we receive are not investigated. Even with a huge spike in resources, that would still be the case. You have to look at the raw statistics coming into our PhoneBusters. Telemarketing fraud and identity theft are definitely out there and we try to deal with these issues in a smarter way. We know we cannot deal with every fraud case. We try to look for patterns, for organizations and individuals that we can effectively target.
In terms of what we do with the problem, that is entirely dependent on the resources we are provided with. We will do our best to effectively deal with the problem based on what we have in front of us. I have already explained the situation with the IMET component.
On the other hand, what we are witnessing here in Canada is not necessarily different from what other nations are witnessing. Fraud is not unique to Canada. It is definitely a global problem. Money laundering is a global problem. Corruption is a global problem. By no means are we necessarily a target country for this type of activity.
We probably have more fraudulent telemarketing than other countries, which is not a good thing. Then again, other countries have greater commercial crime problems in other areas. We are not alone in this problem, but it definitely is a target-rich environment.
[Translation]
Senator Massicotte: As far as counterfeiting is concerned, the number of cases has increased tremendously over the past five years despite the fact that the Bank of Canada, in an effort to protect itself against this crime, has been issuing bank notes that are more and more difficult to copy. The problem is that counterfeiters who are caught are given light sentences. Is there any way to make the public aware of how much harm this fraud causes to the economy in general?
[English]
Mr. German: We have developed a counterfeit strategy in concert with the Bank of Canada to deal specifically with what you are talking about. There is a strong relationship between our commissioner and Governor Dodge. We have collectively met and considered the problem.
There was a great spike in counterfeit currency in the last few years, and in fact that spike skewed crime statistics nationally.
The fix is not that much of a problem. Our commercial crime section, as a result of the waterfront of issues, has not in the past decade been able to devote resources to counterfeiting. It is one of those areas wanting action, much like corporate governance prior to the IMETs.
We have a strategy and the Bank of Canada is very supportive of it. We are seeking funding for it at this point. We have every indication that the government is supportive of the route we are taking. We believe we can deal with the counterfeit problem from an enforcement perspective using two or three well-targeted teams.
I should mention that the Bank of Canada looks at other pillars, including prevention and education, with which we are heavily involved. As well, the Bank has changed the design and security features of our currency, and we hope that will help. It is not simply an enforcement answer.
One of our concerns with counterfeiting is that organized crime is no longer stove-piped. It is involved in drugs, securities fraud or wherever it can make money. Organized crime groups work better together, so they develop partnerships just like the police develop partnerships. We have found that counterfeiting is no longer purely the domain of a couple of good printers but has become an organized activity, and the operators will continue until it is no longer productive for them to do so.
The Chairman: Could you give the committee a quantum figure to provide it with a sense of the range of the problem?
Mr. German: Without referring to the figures from Statistics Canada, we are looking at a 400 per cent to 500 per cent increase over the last decade in counterfeit currency.
The Chairman: What would be the overall quantum?
Mr. German: I could not guess the total dollar value. I would have to research that figure, which could be easily obtained. The total dollar figure is in the millions, but the greater concern is waning confidence in the currency. For example, what happens when a store will not accept a $50 bill or a $100 bill? One cannot help but wonder when they might stop accepting $20 bills. Even if the concern is completely disproportionate to the numbers, citizens' confidence in the currency matters.
Senator Massicotte: The best evidence of that is found in convenience stores that no longer accept $50 bills. If citizens lose confidence in their currency, it becomes a huge problem for the national economy.
Senator Kelleher: I will not address the IMET issue because Mr. Brown has given the committee assurances in that regard. However, I am concerned about the white collar crime in general. I believe you said that the majority of complaints are not investigated. I understand, from my sources, that that is because the RCMP does not have the resources to investigate such crime.
Could you quantify that for the committee to help clarify the situation? What did you mean by ``the majority?'' If you had your druthers, how much money would you require to deal with such a problem?
Mr. German: As a former Solicitor General, Senator Kelleher, you are well aware of the competing priorities for law enforcement dollars; and we recognize that. Fraud in commercial crime is one area of many that are looking at the same pot of dollars; and we recognize that too. It is quite impossible to put a dollar figure on what we would like to have. I can say only that we tried to do this in a professional and systematic way. Taking the one issue of counterfeit currency, most incidents would not be investigated. The police officer might go to a store, pick up a bill and inventory it, but no investigation will take place. It goes into the general collection of seized counterfeit. We will do an analysis to determine similarities in pattern, but that is about all. Usually, there are no suspects and so we cannot expend police resources on an investigation.
However, some counterfeit bills come to us with suspects attached. For example, a licence plate of a car might be recognized. That kind of clue could lead to other tips. We will pursue those cases, but not every one because that would not be a good use of taxpayer dollars. We have to look at this intelligently and systematically. We need sufficient resources to pursue suspects.
We have between five and ten full-time resources across the country working on our counterfeit strategy. That is all. We estimate that to do a good job in this area in collaboration with local police, who are key to the strategy, and in an integrated fashion, we would probably require 30-plus resources. That is not a large number of people. We are not looking for all-new resources because we will look to reallocate existing resources internally. The current strategy is to leverage our resources in the best way possible. Each of these areas, such as telemarketing, corporate governance, et cetera, is different. It is impossible to give the committee an exact figure without first looking at individual areas.
I would like to defer to Superintendent Sliter to provide the committee with some figures to define ``the majority'' and describe how we distil those that we deal with from those that come in. Superintendent Sliter is familiar with how these complaints are received and investigated.
Senator Kelleher: Unfortunately, I continue to receive these complaints.
Superintendent J.R. (John) Sliter, Director, Integrated Market Enforcement Program, Federal and International Operations, Royal Canadian Mounted Police: I would add that relative to the prioritization process that we use for all incoming complaints, from as many as 5,000 in economic crime, 200 end up in the IMET.
We prioritize cases and set a scoring system similar to that described by the Chair of the Ontario Securities Commission. As Chief Superintendent German described, those that involve suspects might be easier to prove and worthy of investigation. That allows us to determine resource needs. For example, we were able to refer back to a 1998 KPMG study on the IMET program to determine that those cases with high priority on which we expended 10 hours or less possibly indicated that they were not investigated. One could assume that those cases were of sufficiently significant priority that they should have been investigated, although were not, and perhaps arrive at a scientific methodology in terms of resource requirements.
We used that for IMET and so arrived at 106-person resources to meet our requirements.
Senator Kelleher: I am trying to obtain an overall figure for the majority of cases not being investigated. Is that available?
The Chairman: We are back to the statistical model of the number of complains versus those that are pursued. What is the degree of the public's involvement in the concerns that come to you?
Mr. German: Perhaps we could discuss the calls received via PhoneBusters, the Canadian Anti-fraud Call Centre.
The Chairman: In the time available, give us a sense of the number of complaints that come in, the number proceeded with and the number that are dropped along the way. The concern of the committee is the financial services sector.
Mr. Sliter: Within the broad spectrum of information inflow and outflow on white collar crime, we receive a variety of complaints through PhoneBusters, our commercial crime sections, and when someone walks into a detachment. We may refer it to one of the securities commissions or any number of law enforcement agencies.
To give you some idea of the numbers, I have to refer back to the IMET percentages.
Percentage-wise, the great majority of them end up being referred to outside agencies because they may be better investigated by one of the municipal police forces or the provincial police forces.
Roughly — again, I am using IMET only as an example of proportionality — we may have 200 at the top of the funnel that work their way down to eight. The 200 are those complaints that come in that may end up being referred. Somewhere in the middle, there is some degree of investigation undertaken to determine if it should be followed up; and once it is followed up on, should we launch into a full project status investigation? When we get down to the bottom of the funnel and are dealing specifically with eight projects, those are the ones for which we pull out all the stops and put our resources on.
Similar to the white-collar crime environment in general, some of those complaints at the top of that funnel may simply be calls from investors who lost their life savings to a telephone operator who is taking the details. It may seem trivial, but of course it is the recognition that it is the person's life savings. If one person lost $1,000 and we find 1,000 of those complaints, it goes up quickly on our priority scale and perhaps should be investigated.
The Chairman: Could you give us in writing the number of complaints, how they are dealt with, the process, et cetera? You have given us a general sense, but we want a more statistical analysis to take a look at this independently.
Mr. German: We will do our best. I would estimate less than 5 per cent of complaints in the fraud area are investigated.
The Chairman: A witness here told us that he made complaints to the authorities — both the securities commission and your authority — and got no response. I would hope you would give us a special letter about why you did not proceed with that particular investigation. I think it was Mr. Kyle who made that suggestion, and he is still concerned about it. He felt that we were perhaps treating him cavalierly. We did not intend to do that. However, this is an opportunity for you to respond, however you choose to do so.
Senator Moore: I have a couple of questions. What triggers the quick-start capability? Would this be an investigation referred to IMET by an outside agency like the municipal or provincial police force or the OSC, or is it something that ends up as an investigated case because of your own internal process — it goes through all of your various levels and becomes one of the items that you want to push as a project status case? How does that happen?
Mr. German: Quick-start is an innovation that we are using in the IMETs. It is our attempt to try to cover all of Canada with four teams. The four teams are in Montreal, Calgary, Toronto and Vancouver. What happens if there is a major corporate default in some other area?
The idea was that we would bring together a team, which we see as approximately 10 people, to move to this other area and deal with it. As complaints come in to us from the various sources that Superintendent Sliter indicated, we may find one from an area outside those four cities that is deserving of action.
We have one quick-start in progress right now. That came to us from one of our commercial crime sections that did not have the capacity to deal with it. ``It is big in our province. Is there any way you can help out?'' We proofed it; we analyzed it to see where it fit in relation to other cases and said ``Yes, it is one we should probably take on.''
We put together an ad hoc team of about 10 people from within the IMET program. That includes not just RCMP, but partners; even the Ontario Securities Commission contributed, as did the Organized Crime Agency of B.C. and so forth. We moved that entire group to this location and they work for a sufficient period of time to deal with the bulk of the file and then turn it over to the local commercial crime section.
Senator Moore: Of the RCMP.
Mr. German: Yes. Really, the case selection is no different from any other. It would have to fit the same criteria. It is a device we would only use from time to time to deal with those areas outside of the four cities.
Senator Moore: I notice that when people are selected — and it looks like quite an onerous selection process — they must sign on for a minimum of three to five years. When you do secondments, as you mentioned in your paper, are those just for case-specific periods or are they also coming into the IMET under that umbrella? Do you expect them to join for the same three-to-five-year period?
Mr. German: We are trying to be as innovative as possible. We are open to any type of arrangement that works for the IMETs. The IMETs are trying various different and new things that we hope to also use in other areas of white- collar crime.
The short answer is that our secondments are permanent. For example, the Ontario Securities Commission and the B.C. Securities Commission have people in our IMET offices; they are working full time with the teams. How long they stay will be dependent on an MOU with that organization. However, I think I am correct in saying — Superintendent Sliter can correct me if I am wrong — that we would hope that their investigators would stay for approximately the same amount of time as our investigators; it is that continuity and so forth. The beauty of these partners is that they come with specific market and local knowledge that is very helpful.
Senator Meighen: Roughly what percentage of an IMET would be civilians and what percentage would be RCMP?
Mr. German: About 50-50 in the final analysis, when you look at our investigative assistants, legal counsel, forensic accountants and secondments.
Senator Meighen: Is that a percentage that you find appropriate or is it what you end up with? Would you like to see it change one way or another?
Mr. German: We are quite comfortable with that. We have been moving toward increased civilianization because the days of the idea that a police officer can do everything are gone. We have to rely on expertise. We cannot insist that all of these experts go through boot camp, so to speak. There is a need for qualified investigators, but there is also a need for forensic accountants, lawyers and so forth. The ratio in IMET seems to work. We would like to see more of that in our other, more traditional, commercial white-collar crime areas.
[Translation]
Senator Plamondon: First of all, I must tell you that I am scandalized by the fact that you only investigate 5 per cent of the complaints you receive. When I was the head of the consumer group, I had seen some misleading advertising to the effect that certain complaints were never followed up. We then found out that the complaints that had been investigated were those that could be used as an example across Canada.
The individual who turns to you expects you to do something. You have a certain prestige, the Royal Canadian Mounted Police is an authorithy. Are you not saying today that 95 per cent of the Canadians who do turn to you should not bother because you will not be investigating the issues?
My second question pertains to privacy. What do you do with the information? Do you enter it into a data bank? Do you share with anyone? Once you have the beginnings of an investigation that has not been concluded, do you turn it over to the consumer so that he can continue elsewhere? For the individual who is not in the 5 per cent, what would be the purpose in turning to you?
[English]
Mr. German: The 5 per cent was a ballpark figure for you. It is really a difficult thing to put your finger on. If you were to look at these various areas — what we get through PhoneBusters in terms of telemarketing fraud, what we get in terms of counterfeiting and so forth — the reality is we cannot investigate more than 5 per cent at present. I could be wrong; maybe it is 8 per cent or 10 per cent, but we are talking a small percentage.
Certain things do take place. There is a prevention and education component.
When people do call in, for example, to PhoneBusters with complaints that they have lost money in a telemarketing fraud or whatever, the PhoneBusters folks talk to them and suggest remedial action. We even have senior ``busters'' who will deal with the victims and try to help them work through the issues. However, you are quite right that we can only deal with a certain percentage.
You also have to realize that when conducting a fraud investigation, much like other investigations, there are many complexities today that did not exist before. The requirements of the Charter must be adhered to, section 8 in particular, with regard to searches. There are pretty onerous requirements on the police when searching for documents and so forth, and similarly with disclosure. A significant amount of time is spent in terms of disclosure of cases and so forth. Cases are prepared differently today than they were a decade or two decades ago. There is much more expected of the police. I am not saying that is a bad thing. That is probably a good thing. However, it is time consuming and cuts into resources.
In terms of privacy, we are obviously bound by the federal Privacy Act and the federal Access to Information Act. I would like to think that we adhere to both strictly. We can share intelligence under the Access to Information Act with other law enforcement agencies for a consistent purpose. That does happen. We work closely in an integrated fashion on proceeds of crime, IMETs and so forth. A sharing of intelligence and information takes place. We could not do business if we did not have that. We cannot publicly disclose private information other than within the strictures of the Privacy Act and the Access to Information Act.
Senator Plamondon: What do you say to the consumers who call you when you know that their complaints will not be investigated? Do you tell them why? Do you tell them what you will do with the complaint? What do you say?
Mr. German: Certainly our expectation of anyone who is dealing with the public is that they would be upfront. I would like to think that we are. If you take the case of Superintendent Sliter and me, we started as constables on the street. The people we deal with are victims, the average citizen. That is the nature of police work. We are committed to public service and doing what we can for citizens. I am pretty confident that our people at the front line are just the same. It is no different. Our call takers at PhoneBusters are oriented towards the work they are doing and the public. You have to be honest with people about expectations. It is difficult to tell people, ``Your complaint will not be investigated.'' They do not like to hear that.
Senator Plamondon: Do you tell them?
Mr. German: If we are not, we should be.
Senator Plamondon: Do you?
Mr. German: In my situation I do not deal with front-end complaints personally, but yes, our people do tell them. If they do not, if there are instances where they have not told them, then they should. The only reason police officers may not tell people the full details is it is hard. I would like to think they are doing it. We should be, because we cannot create expectations that investigations will take place when they will not. I cannot answer for everybody out there who is taking complaints.
The Chairman: Superintendent, thank you. I want you to address a central question that we have heard from a number of previous witnesses, and specifically Mr. Brown from the Ontario Securities Commission, that is, the question of centralizing your efforts through IMET. We heard Mr. Brown comment on the process of centralizing the securities commissions into one commission. I think we are the only country in the OECD that does not have one central regulator. Therefore, we have not made our domestic economy as efficient as we could. There are barriers to doing that. He says we are making progress and he thinks it is inevitable. You have heard him say we are still not there yet and there is not the political will to do that.
On the other side, there is a clear track if we choose to centralize prosecutions. We have heard that your establishment has hastened the harmonization of prosecutions through the various regulatory agencies across the country.
Can you give us the RCMP's view of the efficiency and effectiveness of having one central prosecutor? You heard me say this before. I wonder if you have had some time to think about it. Mr. Brown was gingerly supporting the idea, but he has a constitutional issue and a provincial issue. We have all heard that that would be more effective. We have heard that it would be more efficient. We have heard that it would be fairer to consumers. It would centralize these concerns and be more cost effective. What do you say about that?
Mr. German: I may be even more gingerly about it, but on the other hand, I do want to answer it as fully as I can. I think we have to look at a few basic premises, the first being regulatory versus criminal. Mr. Brown is definitely in the regulatory field. We do not pretend to be regulators or enforcing regulations. We are definitely in the criminal sphere. What we should be doing is criminal enforcement.
The Chairman: I think you heard me explain the differences between regulation and enforcement, his responsibility provincially and the Criminal Code.
Mr. German: Yes. We are looking at criminal enforcement. We very much have taken the view in the RCMP that the IMETs will take on cases that are primarily national interest cases. We do not feel that we are constrained by provincial borders in terms of the cases that we take on. The same thing applies in our commercial crime unit with large corporate cases. If we believe that there is a national interest dimension, we will investigate them even though it is in the Province of Ontario or Quebec, where they have their own provincial police forces. Fortunately, there is good cooperation with both the Sûreté du Québec and the anti-racket personnel in Ontario. That is one thing to keep in mind.
We work cooperatively with all of the securities commissions that we deal with. Whether there is one or a dozen is really a question for our political masters. It is not for me to answer. We will work with the system that we are given. One can draw one's own conclusions about whether it is easier to work with one or with twelve. Right now, we have good relationships with the securities commissions that we deal with.
When we work in the United States, we deal with the Securities and Exchange Commission. It is one regulator there.
It is really a political issue that I am not in a position to respond to.
The Chairman: I understand that. Let us get to the heart of it. Lay aside the political decision. Let us look at it from a view towards an economic regulatory mechanism that acts more effectively and efficiently. Is it fair to say that it would be more effective, more efficient, more competitive and better for the community and the market as a whole to have one central prosecutor, in effect, or prosecutorial team, as opposed to being spread across the country in different jurisdictions and so on?
Mr. German: Again, senator, you are talking about the regulatory world.
The Chairman: No, I am talking about the criminal world.
Mr. German: In the criminal world, we are already prepared to deal with cases right across the country. If they are national interest cases, we will deal with them and do whatever we can within our resource base.
We also have to look at the prosecution component. I am distinguishing between police and prosecutors. There has been an important development, in that although Criminal Code prosecution is the responsibility of the provinces, recent amendments now allow the federal government to prosecute fraud. They are not doing it yet because they are working out protocols with the provinces, but in some ways that gives us the best of both worlds. We as the police can turn to the provinces and say, ``Are you prepared to prosecute this?'' If they are not, we can go to the feds and say, ``Are you prepared to prosecute?'' The federal Department of Justice is a partner in the IMETs. They are on our teams as counsel and are really gearing up to do those prosecutions that the provinces are not prepared to do.
The Chairman: Is it fair to say that we are moving inevitably to a more efficient prosecutorial system?
Mr. German: On the criminal side, I think that is correct, Mr. Chairman.
The Chairman: If there are no further questions or comments, I thank you, Chief Superintendent German and Superintendent Sliter. Your work is pioneering. We all agree that it is important work. We agree that you are running as fast as you can. We would like you to run faster because we are here to protect the consumer and to increase the confidence of foreign as well as domestic investors in our economy. Your work is crucial to that sense of legitimacy and credibility. We thank you for your work and your efforts. Keep it up. We will be pushing the powers that be to bring more political will to bear to make your work even more effective and efficient.
Mr. German: Thank you for having us, senators.
The Chairman: Thank the commissioner. He has been very helpful in allowing us to have your evidence here.
Mr. German: We will do that, sir. We will also follow up on the two issues you mentioned. We will comment on Mr. Kyle's issue, and we will try to flesh out more of the statistics for you.
The Chairman: I appreciate that. Thank you so much.
The committee adjourned.