Debates of Oct. 8th, 2003

Motions for Papers

[Some hon. members]

Agreed.

The House proceeded to the consideration of Bill C-48, an act to amend the Income Tax Act (natural resources), as reported (without amendment) from the committee.

Income Tax Act

[Ralph Goodale, Liberal, for the Minister of Finance]

moved that the bill be concurred in.

[The Acting Speaker (Ms. Bakopanos)]

Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Ms. Bakopanos)]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Ms. Bakopanos)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Ms. Bakopanos)]

In my opinion the yeas have it.

And more than five members having risen:

[The Acting Speaker (Ms. Bakopanos)]

Call in the members.

The division on the motion stands deferred.

The House resumed from September 29, 2003 consideration of the motion that Bill C-46, An Act to amend the Criminal Code (capital markets fraud and evidence-gathering), be read the second time and referred to a committee.

Criminal Code

[Paul Crête, Bloc, Kamouraska—Rivière-Du-Loup—Témiscouata—Les Basques, QC]

Madam Speaker, I am pleased to speak today on Bill C-46. The Bloc Quebecois is in favour of the bill in principle, but reserves its decision on the division at third reading stage until we see how the government reacts to our amendments.

I would remind members that, as early as the fall of 2002, the Bloc Quebecois urged the federal government to tighten the provisions of the Criminal Code so that the authorities would have better tools at their disposal to fight corporate fraud. The Bloc is therefore delighted that the government has given in to our pressures and has taken our opinions into account and retained some of our suggestions.

We do, however, find it unfortunate that not all of our suggestions were accepted. For this reason, we advise you that, barring major amendments at third reading, we could decide to vote against it, even if we do agree with the principle at this second reading stage.

These major reservations, however, relate to an aspect of the bill that we shall be trying to amend at the committee stage. We find it difficult to understand that this bill could provide that a federal attorney also has jurisdiction to prosecute Criminal Code offences concerning capital market fraud.

This is especially worrisome to us since the federal government has publicly announced its intention of establishing a Canadian securities regulator. Having a Canadian Securities Commission was one of the obsessions of the former finance minister, soon to be the prime minister of Canada. And this would be done despite the fact that jurisdiction over this area is clearly indicated, despite the fact that the securities commissions in each province have made their choice clear. The former finance minister, the member for LaSalle—Émard, seemed intent on getting his way on this.

We are concerned about what Bill C-46 will turn out like if it is not amended in order to ensure clear respect of Quebec's jurisdiction. For us, regulation of securities clearly falls under the jurisdiction of the Government of Quebec. We therefore disagree with the federal government's intentions in this regard and want to be sure that no encroachments of jurisdiction will result.

But, I want to talk in general terms about this legislation. This enactment amends the Criminal Code by creating a new offence of prohibited insider trading and creating a new offence to prohibit threatening or retaliating against employees for disclosing unlawful conduct. The enactment increases the maximum penalties and codifies aggravating and non-mitigating sentencing factors for fraud and certain related offences. In other words, the allowable sentences are being increased so as to deter people from committing this kind of offence.

Furthermore, in keeping with the Criminal Code, the enactment provides for concurrent jurisdiction for the Attorney General of Canada to prosecute those offences, taking into consideration the reservations I mentioned earlier.

In addition, the enactment also creates a new procedural mechanism by which persons will be required to produce documents, data or information in specific circumstances, to make it easier to build a solid case, without getting lost in a legal labyrinth when information is quickly needed to serve as evidence, and to ensure that any necessary changes can be made as soon as possible.

Clearly, this bill follows on the heels of recent corporate scandals in the United States. We only need mention Enron. These scandals have made us aware of how fragile our financial system is and how much we rely on it.

During the 1930s, before the crash, many of our parents and grandparents grew up believing that the stock market was undoubtedly a bit corrupt. After the crash, this sector had to rebuild a more honest, proper and appropriate image or reality. But recent scandals have tarnished the reputation of the financial sector, which desperately needs an unassailable, solid image. Investments take a beating when we can no longer trust the institutions charged with ensuring the transparency of financial transactions. The result is fewer transactions and disinterest on the part of investors. We must remedy such situations.

Although at first we thought that only large investors were affected by a stock market crisis, that is not the case. As I was saying, the biggest players on the stock markets are the pension funds. As a result, if a pension fund suffers large losses, it is the small investors who can lose their life savings and see their retirement projects go up in smoke.

That is why it was time for the federal government to intervene in this matter. The Bloc Quebecois has been speaking out on this subject for over a year. It is a question of ensuring that, at the end of the day, the people who have invested in the pension funds and who do not necessarily have day to day control over what happens to them, the people who trust the companies who administer the funds, will not have the surprise of finding themselves, at retirement, with assets that are not what they might have expected. This situation has been begging for a solution.

For example, in 1998, the Canadian trusteed pension funds held assets of more than $500 billion. Of that $500 billion held in pension fund assets, about $115 billion was invested in Canadian stocks and some $57 billion in foreign stocks. Four million Quebec and Canadian workers contribute to these funds. Only the financial assets of the chartered banks exceed the capital held by the pension funds.

That illustrates the importance of this market, the importance of assuring these small investors, those who invest trustingly, through their pension funds, that their money is well invested.

In addition, analysts have recently observed that trusteed pension funds tend to favour investment in stocks rather than in fixed interest securities. It is all the more important to ensure the validity and security of the system.

In light of the previously mentioned figures, it is clear that a financial crisis would have a direct impact on the retirement incomes of millions of households and it is precisely those households that we have to protect.

Fortunately, to date, Canadian markets have been relatively spared from professional misconduct, except for the cases involving CINAR and Nortel.

In the CINAR case, the Bloc Quebecois condemned it in this House and revealed that there indeed had been major fraud within this company. Today, the company has started up again with new directors, but we do not know the full story, because the federal government signed an agreement through Revenue Canada to put out the fire.

It was clear in this situation that interests close to the Liberal government were called into question, as were some people who were friends of the current regime. A way was found to prevent them from getting the sentences they deserve and that should have been handed down in these cases.

Nonetheless, the CINAR and Nortel crises, and everything that happened in the United States, should encourage us to ensure that our legislation is well drafted and stronger, in order to discourage cheats who might want to abuse the system.

However, the Bloc Quebecois feels that despite the fact that our securities regulation systems are, in the opinion of many experts, much more comprehensive than what existed in the United States before the financial crisis, it is nonetheless important to send a clear message to corporate directors that financial misconduct constitutes a serious crime that is not acceptable in our society.

Let us learn from what happened in the United States. The messages were not clear enough. People had a field day and thought they could do all kinds of things like artificially inflating companies, and conducting all kinds of financial transactions that eluded pension fund administrators.

By the time a scandal breaks, it is too late for people who invested in these companies in good faith, thinking these were rather sound investments. We are not talking about investments in high risk areas. That is not how it was presented to the people who invested in good faith.

In the United States, a really fraudulent system was set up. Here, in Quebec and Canada, this did not happen because we were better protected to begin with; still, there are lessons to be learned, to ensure that in the future the system will be much more efficective than it is right now.

That is why, in the fall of 2002, the Bloc Quebecois called for major changes to be made to the Canadian Criminal Code in order to provide the appropriate authorities with better tools to fight crimes of a financial nature.

What are these changes the Bloc Quebecois is calling for? In a nutshell, since the fall of last year, we have proposed adding a section to the Criminal Code that would make insider trading a criminal offence in order to send a clear message to company directors that the use of confidential information obtained in the performance of their duties for the purpose of making profits or avoiding losses would not be tolerated.

The idea is to avoid situations where, having heard that a transaction is about to take place, a person lines her own pockets during the time when no one else, or almost no one else, is aware of the transaction.

Perhaps we thought for a long time that it was enough to rely on the good faith of people. We are realizing that we need measures, actions and stiff penalties to prevent insider trading. Such offences are one of the most tragic ways that investors' confidence in the system can be shaken.

These offenders figure, “Others in the company, such as executive officers, stand to profit, while I, by the time news of the transaction reaches me, will not have the chance to buy and sell shares the usual way, since the game will be almost over and what could be gained will already have been gained because others have beat me to it, using information before they should have to pocket piles of money”. This way, they make profits or avoid losses at the expense of other investors who do not have access to the same information. This sums up my point.

We wanted this provision to be added after section 382 of the Criminal Code. It would have created an offence of insider trading, which would have carried a maximum sentence of ten years' imprisonment so that people would be well aware of the consequences they could face before they decided to engage in such a behaviour. Then, should they be found guilty of such an offence, they would have to pay dearly.

We see that the government accepted our suggestion and included a new offence of insider trading in the bill. We are pleased about that. The Bloc Quebecois also proposed that a new offence be created for securities fraud. This offence, which would be patterned on the measures adopted in the United States and which would also carry a ten-year prison term, would prohibit fraud when selling or buying securities.

The Bloc also proposed two amendments to section 397 of the Criminal Code. This section clearly stipulates that fraud is committed by someone who:

(a) destroys, mutilates, alters, falsifies or makes a false entry in, or

(b) omits a material particular from, or alters a material particular in,

a book, paper, writing, valuable security or document.

These provisions could have applied to falsified financial statements. It was noticed when gathering evidence, particularly in the American cases, that documents had disappeared and that the tools needed to punish those who had made these documents disappear were not available since no punishment was provided for in the Criminal Code.

Furthermore, subsection 2 makes it a specific offence if documents are falsified with the intent to defraud creditors. This makes it even more relevant. In both cases, the sentence is five years. We, in the Bloc Quebecois, believe that this kind of sentence is not harsh enough to have a deterrent effect. Consequently, we propose that the maximum sentence be increased to ten years so that the message is clearer. People must understand that this type of behaviour will not be tolerated and that those who are caught will have to pay a very high price.

Finally, we suggest that a third paragraph be added to section 397. This paragraph would deal with falsification of documents with intent to defraud stockholders. We think that stockholders, whose investments are not secured, unlike most creditors, constitute a category that is more vulnerable because they have no way of recovering their investment. Consequently, we cannot see why there is a specific offence of fraud that creditors might be the victims of, and there is no similar offence concerning stockholders. We are trying to correct this situation and we hope that the bill will correct it.

Thus, the bill contains provisions on insider trading. As I said, the Bloc is pleased to see them included in the bill. It also prohibits threatening or retaliating against employees for disclosing unlawful conduct or for assisting law enforcement officers to investigate cases of capital market fraud. These employees also need to be protected against intimidation. Of course, when a scandal occurs, when we learn suddenly that someone, particularly if it is at the top level, has committed fraud, we can be sure that some people in the company will keep a low profile. If we want them to have a lawful conduct, we must provide these employees with the leeway and the protection they need to be able to act.

These employees often have a key role to play in disclosing scandals in companies, but they may be intimidated or threatened, including through measures against their job or their livelihood. Someone may suggest that, if a certain document is found, perhaps they will lose their job and will be made to pay the price.

People must be protected from this; otherwise the threat can be such that some may cave in. Even if it cannot be justified, some do it. Moreover, at the present time we do not have the necessary tools. They must be given adequate protection.

Creation of a new offence of threat or reprisal relating to employment would encourage people with inside information to co-operate with law enforcement officials and would punish those threatening or making use of reprisals. This offence would be punishable with up to five years' imprisonment. Obviously, we are in favour of this provision too.

Some of the provisions regarding insider trading, threats or reprisals were requested by the Bloc Quebecois and we hope they will be made into law.

To strengthen penalties in cases of fraud on financial markets, and to make sure that the punishment fits the crime, the proposed reforms would increase maximum sentences for existing fraud offences, and would establish aggravating circumstances, which the courts should take into consideration in sentencing.

Maximum sentences would rise from 10 to 14 years for the present fraud offences under the Criminal Code, and for those affecting the public market. Maximum prison sentences for market manipulation offences would increase from 5 to 10 years.

The proposed reforms would also include a list of specific aggravating circumstances allowing the courts to impose stiffer sentences for the most serious offences. Factors such as the extent of the economic impact or any negative impact on investor confidence or market stability could lead to increased sentences.

The message is very clear, if you work in that sector and if you act illegally in such a way that it has a major impact on investors' confidence, you deserve to be penalized accordingly.

On this side, we want to send a clear message to people who work in that sector, namely that there is no room for fraud because too many people are involved. Also, we are talking about the money of too many people—who often are not the direct investors—who can lose their savings because of this type of behaviour.

Moreover, a person's reputation and standing in the community or work environment, which have always been considered mitigating factors that can reduce penalties, could not apply in such a case. It would not be possible to say that the person in question was generously involved in various volunteer activities or that sort of thing. If a crime of this nature is committed, such factors cannot be used to reduce the penalty.

Finally this is a sector in which these factors are often used to minimize the impact of a crime when the wrongdoers are found out, because they are often people with important positions or philanthropic activities. But the philanthropic aspect does not, in our opinion, justify reduced penalties.

And now, the improvements: this bill provides for improved evidence-gathering procedures. Some sections have the effect of compelling professionals not to respect their duty of confidentiality. Under certain circumstances, this bill can compel a professional to produce documents and even prepare documents that may concern confidential matters, which could certainly come under someone's privacy.

Therefore, even though these sections provide that orders to produce may be subject to certain conditions in order to protect privileged communications such as lawyer-client privilege, the fact remains that some confidential information could be divulged, under certain circumstances.

Thus we might wonder if the fact of compelling a professional to communicate confidential information could undermine the confidential relationship between clients and professionals. I think that this is one idea we should explore in committee in order to ensure that the planned measures maintain the necessary balance in this regard, while still ensuring that the bill will have a dissuasive effect.

We also ought to mention section 487.015 of this bill, which is an attempt to respond to this concern by enabling anyone named in an order under the two preceding sections to apply to a judge for an exemption from the requirement to produce any document, data or information referred to in the order.

If a person says he does not want to provide the information and has good reason not to do so, he may go before the judge and obtain an exemption. So this is a kind of safety net for the protection of the information, but it does not automatically lead to the protection of such information; the judge is called upon to assess the appropriateness of the request.

It remains to be seen what criteria judges will use for denying the disclosure of confidential information. It will therefore be important at committee stage for witnesses to tell us what these criteria might be, and for us to study the proposals and suggestions. We will need to see whether it is appropriate for them to be incorporated in the act, or as regulations, or whether we need to take some other form of action to ensure that there is a clear understanding of the leeway available for obtaining authorization not to transmit this personal information.

Clause 487.013 allows the banks to disclose confidential information such as the account number, status and type, and the date on which it was opened or closed. As well, they can provide the account holder’s date of birth, currentaddress and any previous addresses.

We must point out immediately that this information is an integral part of a person's private life. When they are requested, the individual's privacy is of necessity being encroached upon. It is incumbent upon us to question just how necessary this breach of privacy is to the objective of this bill.

Quebec and Canada have workable laws to protect privacy. These could still be improved, but it is important that the principle be respected. We would be very pleased if the clause by clause study of the bill, and the contributions of those appearing before the committee could cast some more light on this, so that we can shape the bill accordingly.

Finally, I will address the charges by federal prosecutors. As I said at the start, this is where we in the Bloc Quebecois have a problem, and this is why. The regulation of financial markets is an area that comes under the jurisdiction of Quebec and the provinces, as does the administration of justice.

Under this bill, the Attorney General of Canada would have concurrent jurisdiction with the provinces and territories to prosecute certain criminal fraud cases, including the proposed new offence of illegal insider trading. Federal involvement in this area would supposedly be limited to a narrow range of cases that threaten the national interest in the integrity of capital markets.

These limits need to be very precisely defined. There may be a way to vote in favour of this bill, if we receive enough guarantees on this point and on the whole issue of federal prosecutors.

According to information released by the federal government, the Government of Canada will work with the provinces to ensure proper and efficient concurrent jurisdiction by establishing prosecution protocols.

But between statements of good faith by the federal government and reality, there is often a grey area. I understand that measures to protect provincial jurisdictions should be adequate, clear and precise, and meet the approval of the Government of Quebec and the other provinces.

For many years, the federal government, through the former finance minister, the member for LaSalle—Émard, wanted to implement a Canada-wide securities commission, and thereby intervene directly in provincial jurisdiction. We have to make sure that the federal government does not achieve through the back door what it has so far failed to do through the front door.

We now see what the hon. member for LaSalle—Émard thinks about transferring money to the municipalities. In a very roundabout fashion, he is proposing direct involvement in the municipalities in full view of the provinces. He is blackmailing the municipalities, saying that if they want money, they must tell their province to sign the agreement. This amounts to political bargaining, which is unacceptable and does not respect areas of jurisdiction.

So, if this can be done with the sales tax, it may be possible to do it indirectly through this bill. We must ensure that this is not the direction we are heading in.

Consequently, we cannot support these new provisions. They confirm, in our minds, the federal government's new desire to get involved in the securities sector, which is the responsibility of Quebec and the provinces, as I just demonstrated.

Overall, however, this bill respects a number of the Bloc Quebecois' proposals. It will provide our system, in Quebec and Canada, with the tighter controls it needs, at a time when people have lost confidence, to some extent, in the markets and the securities sector.

So, we must send a clear signal. This bill contains some interesting measures to reinforce a system that, fortunately, in Quebec, was already better than the Canadian system.

The only thing left to do is ensure that Quebec's jurisdiction is respected. If so, the Bloc Quebecois will vote in favour of this bill at second reading. Once there have been consultations and once the committee has heard from witnesses, if we are assured that Quebec's constitutional jurisdiction will be respected, we will vote in favour of the bill at third reading. We will thus have helped create legislation to build an even better securities sector, and we will have also made a satisfactory contribution to the Quebec and Canadian economies.

[Pierre Paquette, Bloc, Joliette, QC]

Madam Speaker, I will begin by congratulating the hon. member for Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques for his presentation. This is no easy subject. In these 20 minutes he has managed to explain in layman's terms the key principles of the bill we have before us.

I would like to revisit one particular aspect, the one crucial for us, namely the regulation of financial markets and the recurring plan of the federal government to create a Canadian securities commission.

I imagine that everyone is well aware that the present finance minister has sought the advice of Harold MacKay in this undertaking—the selfsame Harold MacKay who authored the MacKay report, which led to Bill C-8, a bill we passed after the last election. Mr. MacKay proposed the creation of a wise persons' committee to advise the minister on the best route to take to regulate the securities market across Canada.

This wise persons' committee should soon submit its recommendation, which, as on many issues, is likely to be along the lines of establishing a Canadian securities commission. Membership would be voluntary, to put pressure on the provinces and Quebec as well. The Ontario Securities Commission clearly supports this initiative of a Canada-wide securities commission. The federal government's game plan will be to make sure all the provinces are onside, so as to isolate Quebec, and say, “Look, we are not forcing you to get onside, but since you are alone on your side, this will be a problem”.

I would like to ask the hon. member this: based on the questions he raised and what I just said, is the danger with Bill C-46 not a classic in terms of federal government interference, using a real problem and real concerns of the public—in this case, small investors and future retirees—about losing a portion of their savings because of financial fraud?

This is a real problem. We see it in the municipalities, which have financial needs with respect to infrastructures, we see it with child poverty. So, in response to a real problem, a real concern, a solution, be it legislative or financial, is proposed along with a slew of terms and conditions that result in us living in an increasingly centralized country, while what the Fathers of Confederation had in mind was a confederation. Without the guarantees the hon. member referred to, Bill C-46 may well become another part in this huge puzzle of the federal government intended to centralize Canada and make it a unitarian state.

That is my question for him.

[Paul Crête, Bloc, Kamouraska—Rivière-Du-Loup—Témiscouata—Les Basques, QC]

Madam Speaker, I thank the member for Joliette for his question and, particularly, for remembering the full name of my riding, like you, Madam Speaker; what a performance.

More seriously, indeed, with regard to the issue of the Canada-wide securities commission and the fact that the federal government is saying that membership would be voluntary, this is strangely reminiscent of how the federal government has operated in recent years, rolling over everything in its way. It is the same thing with the social union.

But things have been different here in the last 10 years or so. Before, when there was a debate in the House of Commons, people would limit their comments to the potential benefits of adopting this kind of behaviour, and not get into whether it was really our responsibility. Since the Bloc Quebecois has been here, we have been asking questions and discussing them publicly.

I believe that, on the issue of the securities commission, if the Bloc Quebecois had not been here for several years to provide the momentum and follow Quebec's position in this sector, perhaps the securities commission would already exist today.

But we must keep in mind that the federal government is constantly launching the attack, constantly introducing new initiatives. This is why we are waiting to make a final decision on this bill.

In the absence of a clear signal on the part of the federal government that the other improvements in the bill are accompanied by a respect for Quebec's jurisdiction, the Bloc Quebecois will not vote in favour of the bill, clearly showing its opposition to such an encroachment on Quebec's jurisdiction.

That being said, we have contributed to other improvements because we thought it was the right thing to do. We do not believe in legislation based on a worst case scenario; we believe it is important to have the best legislation possible providing the best economic framework possible. Our interesting suggestions were taken into account and we are very happy about that.

One of the reasons we will delay our final assessment is the current behaviour of the federal government in several files. A case in point, which I will not belabour, is the issue of the transfer of the gasoline tax to the municipalities. That is another example of a pan-Canadian vision of things shared for the most part by the prime minister in waiting, the member for LaSalle—Émard. His goal is very clearly to keep on denying the reality of what Quebec is.

I would rather we recognize that the various securities commissions across Canada already have a mandate, that they have a jurisdiction and that they are able to get along. If they need a federal interlocutor at the table as a witness to listen and give additional information on the legislation, or if we want to amend the Criminal Code, should we not consider the advice of each provincial securities commission and include it in the bill?

Indeed I hope they will come before the committee and say that, given their point of view and the responsibility they have under the Constitution, they will help produce legislation, under the Criminal Code—a federal jurisdiction—which will respect the jurisdiction of the provinces over securities commissions.

As a consequence, the Bloc Quebecois' contribution has been to put forward the best possible amendments to the bill. Let us hope that the federal government will listen to our demand, which would allow us to vote for the bill at third reading, provided the jurisdiction of Quebec and the provinces is respected.

[Greg Thompson, Progressive Conservative, New Brunswick Southwest, NB]

Madam Speaker, I was reading the latest edition of Business Week on this very topic and I wanted to bring some timely information to the House.

I have a question for the member. I am fascinated by the federal and provincial jurisdiction in this area. My understanding is that Bill C-46 would give added strength to the federal government but recognizing that jurisdiction is provincial, not taking away from the province. I know that is a sensitive issue in the province of Quebec. However my understanding is that it would strengthen the federal role but would not diminish the provincial role. Is that his understanding of Bill C-46?

[Paul Crête, Bloc, Kamouraska—Rivière-Du-Loup—Témiscouata—Les Basques, QC]

Madam Speaker, we are indeed casting a critical eye on this bill. We must ensure that, within the federal jurisdiction, we have the best legislation possible and that the Criminal Code is strengthened. Potential defrauders must know that if they engage in illegal activities, they will have to pay the price. That is the federal government's responsibility.

We must ensure that we have the best legislation possible in that area but, at the same time, we must ensure that the provincial jurisdiction with regard to securities is respected. Indeed, we have seen over the last few years that there is no consensus in Canada on the issue of transferring this responsibility to the federal government.

Earlier, my colleague from Joliette talked about a committee that will have to make recommendations on this subject. We must simply ensure that, through Bill C-46, we are not doing now what the member for LaSalle—Émard wants to do when he becomes prime minister, which is encroaching on provincial jurisdictions.

We hope that the final version of Bill C-46 will respect Quebec's jurisdiction while including in the Criminal Code the tools needed to reassure investors, particularly small investors, as to the safety of the system governing the whole issue of security trading.

[Greg Thompson, Progressive Conservative, New Brunswick Southwest, NB]

Mr. Speaker, I want to put a few points on the record in regard to Bill C-46, an act to amend the Criminal Code in relation to capital markets fraud, and to enable the authorities to investigate, prosecute and imprison for wrongdoing.

A short time ago I was talking about an article I happened to be reading in the latest edition of Business Week. The bill is in response to what has happened in the United States and, to a lesser degree, obviously, to what has happened in Canada.

The United States congress, which is the equivalent of our Parliament, recently passed a bill called the Sarbanes-Oxley act of 2002 that will tighten up the criminal code in relation to some of the wrongdoings in the business world, and in the investment world in particular.

One of the famous cases, which I am sure everyone has heard about, was Kozlowski of Tyco International, an individual who was reported to have stolen $170 million from the company he represented as chief executive officer. In addition to that, there were unauthorized loans and bonuses to fraud investors of that company of another $430 million. The trial is underway in Manhattan as we speak.

That is not the only case. There have been many. We have all heard of the Enron scandal where individuals cooked the books and used accounting deceptions and procedures to make it appear as though the company was making money instead of losing money. As a result of that, companies like Enron and WorldCom have gone broke and the employees and shareholders have been left penniless, with the exception of the chief executive officers of those companies. Some of those trials are still ongoing and we have yet to know what the outcome of those will be.

The most famous example of alleged wrongdoing in the marketplace is Martha Stewart. The article I was reading from the latest edition of Business Week talks about some of the improprieties that might have been conducted by Martha Stewart and her company in terms of insider trading.

I only have to remind the House of when the bubble burst for Dotcom and how some of the investment companies themselves worked the system to drive up the initial price offerings of companies, only to cash in the initial offerings that they received at brokerage houses. It was discovered there were no earnings behind those inflated prices, no history of earning money and no potential to earn money. As a result of that a lot of people suffered needlessly. Innocent investors suffered. You and I know some of those people, Madam Speaker. They are our friends and neighbours who were, the term which is often used is not very sophisticated, sucked into that type of investment thinking they were good investments but which were not good investments.

The bill before us now would attempt to crack down on some of that illegal activity. It would increase the maximum sentences for existing fraud offences, establish a list of aggravating factors to aid the courts in sentencing, allow the courts to issue production orders to obtain data and documents from persons not under investigation and establish concurrent federal jurisdiction to prosecute certain capital market fraud cases. That is where the act would have to work in conjunction with the provinces, which would have the lead in any of those prosecutions because of the jurisdiction the provinces enjoy in these areas.

One point I briefly touched on was insider trader. This is where people within the industry provide information to allow their friends to buy shares at a particular price, knowing full well the price will be driven up by a certain announcement, an approval or whatever.

Bill C-46 creates a new criminal offence of insider trading. It is already illegal. It would create a new criminal offence with harsher penalties. This is a topic that members have heard me speak to time and time again in the House.

In fact I have a bill before the House now, Bill C-241, entitled the whistleblower's bill. It would provide whistleblowers within the public service a level of protection. When they see something wrong within government, public servants can in fact blow the whistle. In other words, they can report that wrongdoing knowing full well that their jobs will be protected. They will not be run out of the government or dismissed from the government or treated unfairly in any way for uncovering wrongdoing.

One thing Bill C-46 would do is provide whistleblowing protection to employees who expose wrongdoing under federal or provincial law. A new criminal offence of employment related threats or retaliation would carry a maximum term of five years. In other words, people within the corporate structure could in fact be prosecuted under criminal law for subjecting their employees to that type of harassment or punishment simply because they were reporting wrongdoing. I think that would allow many more people to come forward when they see that happening within capital markets or within investment houses.

One of the best examples of that I believe was with one of the top executives of Merrill Lynch. Knowing full well what was going on within Enron, he was very reluctant to classify Enron as a good buy in the investment market. He was punished by his own company. He was ostracized and humiliated. Eventually he had to leave the corporation simply because he was telling the truth. This type of legislation would protect individuals like him.

The current maximum sentence for fraud and fraud affecting the public market would rise from 10 years to 14 years. The sentences would be stiffened up. The maximum term for fraudulent manipulation of stock exchange transactions would rise to ten years from five years.

The other component of Bill C-46, which I never thought of myself until going through this legislation and understanding some of the work the committee did and how it actually arrived at this specific component, is it adds a list of specific aggravating factors that would result in harsher penalties, such as the extent of economic damage caused or the impact on market stability.

Again, if we look at Enron, it is the biggest corporate collapse in the history of the United States. The penalty for that would be much more severe because a lot of hardship was imposed on an awful lot of people, not only its employees but individual investors who had put their entire life savings into some of Enron's stock. They wreaked havoc on the lives of a lot of people, including some of their employees. Those types of aggravating factors would be considered when sentencing was handed out.

A person's reputation and status in the community or workplace can no longer be considered as a mitigating factor in lower penalties in cases where those who commit capital markets fraud rely on those very factors to carry out their crimes. Let us take the example of Martha Stewart. I hate to pick on her. I am not sure that is fair.

However, we could argue that Ms. Stewart has done some good in the community, even though we do not see all of it. No one would argue that in terms of donations or sponsoring specific groups. What now will happen is her profile in the community will no longer be considered a factor in terms of the sentencing. In other words, all the good we do will not be part of the sentencing. We will be treated as harshly as the next person, despite some of the public good we may have done.

If we look at the Enron case, that was the defence some of the executives used; look at the public good and how well they had behaved themselves in the community in terms of charitable donations, et cetera. This would discourage that. In other words, it really boils down to the fact that they can not hide under that cover. They would be sentenced on the severity of the offence they perpetrated and could not hide under the cover of a public name or having done public good in the past.

We support the bill and hope that it can be strengthened as we go along. Normally this would be left up to our justice critic to debate this but our justice critic now just happens to be our party leader. I am not sure where it is in terms of parliamentary committee.

I do know the Senate banking committee spent about a year looking at the bill. During its study, it examined other jurisdictions like the United States. The U.S. Congress passed a bill, which mentioned earlier, about a year ago now. Some of the things that were recommended are not in this bill, and I just want to put those on the record.

There are obviously a lot of good things in the bill, but some things have been left out and here are just a few of them.

Code of ethics--

[Don Boudria, Liberal, Glengarry—Prescott—Russell, ON]

Madam Speaker, I rise on a point of order. I apologize to the hon. member. For greater clarity, although it has been discussed by House leaders and perhaps alluded to, I want to confirm to the House that the reference for Bill C-38, presently scheduled to be debated tomorrow, is reference to committee before second reading.

[Greg Thompson, Progressive Conservative, New Brunswick Southwest, NB]

Madam Speaker, I am as puzzled as I think you are by that intervention. I do not think I am alone in that. However we respect the House leader for standing up and doing his best to provide clarity, if nothing else.

I was talking about some of the things that were left out of the bill such as: board and audit committee members being independent; limiting non-audit services that auditors could provide to their clients; and requiring an organization's chief executive officer and chief financial officer to certify that the annual financial statements fairly represent the organization. In other words, to ensure that the information that executives are presenting is true, fair and accurate. Another recommendation was to prohibit compensation committee members from being a member of management and require them to have expertise in compensation and human resources. This is the human side of it and I think it would go a long way.

This is not just about investors or capital markets. It is about the kinds of wealth that capital markets can create provided that we have confidence in those capital markets. That confidence has been tarnished in recent years for the reasons we have outlined, and which most members have.

To get back to a level of respectability, when we and our neighbours invest, we need to be confident that the accounting information and the recommendations we receive from stock brokers and others is accurate and not tainted. If the information is tainted and not represented properly by those representing the company, we need to know there will be consequences for those people such as stiffer sentencing and prison time, as some Enron and Tyco executives will serve if proven guilty.

I think we all support this type of legislation. It is a little slower coming to the House than it was in the United States of America, but I think we have had a chance to identify some of the weaknesses in its legislation. I know our party is prepared to support the government on this initiative.

[Peter Stoffer, NDP, Sackville—Musquodoboit Valley—Eastern Shore, NS]

Madam Speaker, with the trade deals that we enter into with the United States and Mexico in terms of NAFTA, can the member see any problems with this type of legislation in the event of the NAFTA rules or any kind of trade rules which may affect or protect foreign companies from this type of legislation?

[Greg Thompson, Progressive Conservative, New Brunswick Southwest, NB]

Madam Speaker, I guess it is all a question of sovereignty. Criminal activity is criminal activity and they really cannot be protected by trade agreements.

I understand the angle the member for the NDP is taking. We have heard that argument before. I think that has been addressed by the trade minister and by the government, maybe not completely to his satisfaction. However I know, when we talk of wrongdoing and criminal offences, no trade deal in the world can protect individuals from that type of wrongdoing.

It is not so much the interpretation of a particular trade rule or an agreement. It is very much about criminal activity. When that can be identified, they are prosecuted and they would not be immune regardless of what trade deal it might be and regardless of what jurisdiction in which type of activity would take place.

I am pretty confident there is really no argument in terms of protection of these wrongdoers.

[The Acting Speaker (Ms. Bakopanos)]

Before I proceed with more questions and comments, it is my duty pursuant to Standing Order 38 to inform the House that the question to be raised tonight at the time of adjournment is as follows: the hon. member for Renfrew—Nipissing—Pembroke, National Defence.

[Roy Cullen, Liberal, Etobicoke North, ON]

Madam Speaker, I am pleased to participate in this debate on Bill C-46, an act to amend the Criminal Code (capital markets fraud and evidence gathering). This is a very important piece of the puzzle that is needed in Canada to reassert and re-establish confidence in capital markets.

The stories we hear about Enron and WorldCom in the United States create some questions in our minds as to what this means for Canada. We have heard of the Sarbanes-Oxley legislation in the United States and many wonder why we are not implementing similar legislation. A number of us on this side of the House decided to pursue this question.

The capital markets provide the lubrication for the efficient operation of Canada's economy. If the markets are threatened, the economic growth in Canada is impeded. Fewer jobs are created and the economic well-being of Canadians is attacked.

When we look at what has gone on in the United States with Enron and WorldCom and the response in terms of the congressional and legislative approach in Sarbanes-Oxley, we need to understand that Canada has a different set of capital markets. Canada has a different mosaic in terms of the jurisdictions that are involved in the capital markets. We need to design our own solutions here in Canada.

Bill C-46 is a very good start. It deals mostly with the enforcement and compliance components of dealing with capital markets fraud. Bill C-46 introduces new measures to strengthen enforcement against serious capital market fraud offences, measures previously outlined in budget 2003. This legislation tackles capital market fraud by creating a new Criminal Code offence of improper insider trading. It also protects employees who report unlawful conduct within their corporation from retaliation by creating a new employment related intimidation offence.

Bill C-46 also raises the maximum sentences for existing fraud offences and establishes aggravating factors to assist the courts in determining a sentence that would reflect the seriousness of the crime. It also enhances the evidence gathering tools available to investigators by amending the Criminal Code.

These are very important measures supported by the six integrated market enforcement teams that will be established across Canada over the next two years. These teams will be comprised of RCMP investigators, forensic accountants, lawyers and other investigative experts. These teams will be responsible for tracking down corporate criminals and deterring future occurrences of these crimes. This is a very important enforcement and compliance measure which I certainly support.

Canada is exposed to economic crime along the lines of Enron and WorldCom. In fact, many would argue that we have had some occurrences of that already. Many members in the House and many individuals across Canada are familiar with Bre-X Minerals. YBM Magnex, Philip Services, Livent Inc., Laidlaw, Cinar and Castor Holdings were fairly sizeable market frauds perpetuated here in Canada. We need to deal with this in Canada as well.

When we look at the approach to dealing with this type of economic fraud in Canada, we find that there is quite a quilt of different players and different jurisdictions. For example, the Canadian Public Accountability Board has been set up to monitor the independence and the role of auditors when they examine financial statements.

This body, which is actually chaired by the former governor of the Bank of Canada, will establish the rules by which audit firms can engage in non-audit work, such as tax work or management consulting, for audit clients of listed companies. It will set these guidelines in the sense of when auditing firms will be seen to have crossed the line of conflict of interest. It will also ensure that the firms that are auditing public companies have established mechanisms for quality control, for professional development. It will have the authority to delist auditors who fail to comply with the rules that have been established by this particular entity.

Our group that looked at this believes that this needs to be given a chance to work. We have confidence that it will work and it will deal with the question of auditor independence and auditor quality control.

When we look at the Sarbanes-Oxley legislation that was passed in the United States, there are many important best practices that are established in Sarbanes-Oxley dealing with the separation of the chairman and CEO roles, the question of the independence of directors and a host of other issues. What we need to do here in Canada is make sure that we pick those best practices that were established and where there is general consensus within the financial and investor community, these best practices should be adopted, whether they are in Canada, the United States or anywhere.

There is an important tool in Canada to show leadership in this particular area, and that is the Canada Business Corporations Act. The Canada Business Corporations Act affects many companies in Canada. In terms of the breadth of coverage of the Canada Business Corporations Act, it is something like 17% of all companies in Canada. It is quite a sizeable grouping of companies that are incorporated under this federal statute.

It is through this act that the federal government can exert some leadership by building into the Canada Business Corporations Act some of the best practices that most observers would conclude are the best practices in terms of corporate governance and a host of other items. One of those is the splitting of the chairman and CEO roles. It is probably more advantageous to separate those roles so that the chairman operates more independently and can act on a more objective basis on behalf of all the shareholders.

We have the question of the independence of the boards of directors. Too often we find that the board of directors is selected indirectly by the executive management group of corporations. They ultimately can become beholden to the management of the company. It seems to me that we need to have independent directors on the boards of public companies and we need quite a large number of them.

Let us look at the audit committees. Probably most public companies today have audit committees. It is quite important that these audit committees have directors that are well versed in financial reporting and financial affairs so that they can diligently do their work, listen to the reports of the external auditors and the internal auditors and take the steps that are necessary to protect the interests of the shareholders and other stakeholders.

In Canada, as I said earlier, there are a number of jurisdictions involved in dealing with corporate governance. For example, the federal government is responsible for the regulation of trade and commerce. It is responsible for banking and the incorporation of banks. It is responsible for patents and copyright. It is responsible for peace, order and good government and other matters not exclusively assigned to the provinces.

By the same measure, provinces are responsible for the incorporation of companies with provincial objects. They are responsible for property and civil rights in the province. They are responsible for the management of lands and resources and generally all matters of a merely local or private nature in the province.

As I said earlier when I gave the percentage of 17%, that is the percentage of listed companies that are federally incorporated. In fact the Canada Business Corporations Act applies to roughly 40% of all corporations, listed or not, in Canada.

One of the aspects that our little group on this side of the House looked at was whether we need to differentiate the rules on corporate governance as they relate to large corporations and small corporations. We felt that we should. How to define large corporations versus small corporations is something that needs to be looked at in more detail. Our group felt that large corporations have the breadth of resources, the scope of management and the scope of operation that they could be expected to have corporate governance at a higher level than some small companies that are restrained simply by the economies of scale, the very size and scope of their operations.

In Canada we need to ensure that we have capital markets that are operating efficiently and effectively. We also have players that monitor and regulate the securities industry. There are securities commissions in every province across Canada.

One initiative that our government has been pursuing for some time is to have a national securities commission or regulator that would bring all the provincial securities commissions under one roof. This would be the most cost effective and the most efficient way of doing it. If a company wants to list in Canada, right now it has to go to all the various provincial securities regulators. A national securities agency would be very efficient and effective.

Unfortunately the politics, as they sometimes do, get caught in the middle of this. Certain provinces want to see that happen and others do not. However, in terms of corporate governance and in terms of the efficiency and effectiveness of capital markets, having a national securities regulator would certainly go a long way to improving our corporate governance in Canada and would restore more confidence in the capital markets.

One of the securities commissions that plays a very lead role across Canada is the Ontario Securities Commission, simply because of its size, the number of listings, the number of companies in Ontario, the Toronto Stock Exchange being in Toronto, and much of the activity that takes place in Ontario and the large concentration of industrial activity. The Ontario Securities Commission falls under the Ontario Securities Act. This regulatory body is responsible for overseeing the securities industry in Ontario. It plays quite an important role in monitoring the compliance in corporate governance and financial reporting.

One thing we learned from the financial debacles in the United States and Canada, whether it was Enron, WorldCom, Livent here in Canada, or Bre-X, is the importance of financial reports that are accurate and reflect economic reality. The public companies especially have to come up with quarterly reports. There is huge pressure on management to show continued growth and earnings per share. Sometimes they are caught in a situation where they perhaps have to compromise their principles and distort the economic realities so that their shares can keep moving forward, especially if they have executive compensation schemes and stock options.

Stock options for executives is something that is here to stay. Our group on this side looked at the need for those stock option schemes and the way that executives and the management team are compensated to be clearly transparent. If the president has a number of stock options, it should not be hidden away in note 25 of the annual report. It should be highlighted, perhaps in the chairman's report or the president's report. It should be fully disclosed so that all shareholders are aware of the extent to which the management team participates in the profitability of the firm.

The group that we assembled would like to see some of the best practices of corporate governance incorporated into the Canada Business Corporations Act. There should be sanctions for failure to disclose financial information in a responsible and accurate way, especially for the CEO and the chief financial officer. If it is shown that the CEO and the chief financial officer misrepresented the financial statements of the company, there should be severe sanctions for that because there are many Canadians--directly or indirectly, through the stock market, pension plans or mutual funds--who are relying on the integrity of the financial reports.

Right now, under the Canada Business Corporations Act, the sanctions for misreporting financial information is minimal. We would like to see that beefed up along the lines of the measures that were introduced by the Ontario Securities Commission and along the lines of the legislation before us here today in terms of the Criminal Code.

In Ontario the penalties in the budget measures act of 2002 increased the fines and maximum prison terms for general offences, such as misrepresenting corporate financials from $1 million to $5 million and prison sentences from two years to five years less a day. The American equivalent, increased by the Sarbanes-Oxley act of 2002, is a fine of up to $5 million and/or up to a maximum prison sentence of 20 years.

As I said earlier, we believe that the Canada Business Corporations Act could be amended to increase both the fines and prison terms so that they are more in line with those of the Ontario Securities Commission. That would mean a fine of up to $5 million and/or a prison sentence of up to five years less a day.

Bill C-46 is an important bill and I want to talk about why we should support it in the House. It is part of a thrust of initiatives that must be looked at in a coherent way in Canada. We cannot just say Sarbanes-Oxley. It would not apply in Canada. If we were to legislate Sarbanes-Oxley here in the House of Commons, it would be thrown out because we do not have that kind of constitutional power.

However, by the same token, the Canadian Public Accountability Board must do its job in ensuring that auditing quality controls are good and that there are no conflicts. The Ontario Security Commission must pushing for strong rules in terms of good corporate governance, independent directors, separation of duties between the chairman and the CEO. There must be a requirement for good, honest financial reporting and severe sanctions. The Canada Business Corporations Act must incorporate the very best practices and ensure that if CEOs and chief financial officers do not play by the rules they will either go to jail or will pay heavy fines. Then Canadians would be protected, the capital markets would be efficient and effective, and people would have confidence in the capital markets in Canada.

In conclusion, this is a bill worthy of the support of the House. We should be pushing and promoting these other measures, especially the Canada Business Corporations Act amendments. I am confident that our government will bring forward those solutions in the not too distant future.