Mr. Speaker, it is a pleasure to speak in the House today to Bill C-46, an act to amend the Criminal Code (capital markets fraud and evidence-gathering).
It is tempting to go down the road, as several speakers have, about the government and its practices versus what it is trying to accomplish in the bill, but I will not do that. I want to talk about this specific bill and feature some of the things that I think are positive but also some of the major weaknesses that need to be discussed.
I know that with the coming election boundary changes we are fast-tracking that bill for the member for LaSalle—Émard to make sure the provincial requirements for new seats will happen. That is something that has been going over the summer and it is happening right now.
I would expect the same thing to happen to Bill C-46. Because it is important for Canadian families and for businesses we need to ensure the business of the House is not ground out. I do not want to see that hypocrisy. The bill is certainly owed to the general public.
The mere fact that we are talking about this shows us that the entire free market system has been shattered by unprecedented corporate fraud. Formerly reputable accounting firms, business leaders and banks have been shaken to their foundations, and it is not just in Canada. WorldCom, Xerox and Enron are good examples in the United States of what has driven us to recognize that there are problems.
These problems highlight a systemic or financial system. It is systemic because it is not just isolated to one or two groups or organizations. They have far-reaching effects and they involve multiple companies and organizations that we do not even know about.
We have focused exclusively on the top, not just the medium and the small, which we still do not know about. Plenty of excellent corporations, which are working very well within the system, are being punished as well because others are abusing it. We need to make sure that stops. There is no doubt about that.
The current spin by the financial market backers and government backers is that this is individual ethics rather than a systemic problem. However the reality is that right now we require the toughest policing between lawyers, police officers and investigators and l to ensure that people can come forth with information and we can gather information. That is a significant change over the last several years. That is an identification that we have systemic problems with our system that is hurting, not only people who invest money but the development of our free market economy, and that has to change.
One of the issues that is not addressed in the bill is another question that needs to be raised. I believe it is fraud. We have a system right now where a CEO can come into a company, cut thousands of workers, sell equipment and assets, raise the price of the stock for the short term, get a big cash handout, a series of bonuses and then leave the company in ruin. That also has to be addressed. The bill does not address that but we should start talking about that as a change to the system.
We have literally thousands of workers who have lost their jobs and people who have lost their investments for a short term, and that has to stop.
This has been driven by a number of issues that have happened in the United States and worldwide, as we said, where millions of dollars have been lost.
The U.S. congress responded by passing the Sarbanes-Oxley act and enhancing enforcement and funding to support investigations and prosecutions. It was very swift and clear on this and here we are still fumbling with it through our system. That is not acceptable.
After listening to thee discussions today from the government side and the opposition parties, it sounds like there is support. My hope is that we will continue to press that and ensure that we at least have some improvements. Where those improvements should go in terms of the length and distance, everything from the actual types of tools that the prosecutors have to the actual fines and jail time, might be different but we have to make sure that something gets through.
I hope we go for some very strong laws and improvements that the bill requires.
On June 12, 2003, Bill C-46, a companion to Bill C-45, the Westray bill, was tabled and presented as a Canadian response to the Enron fiasco and the Sarbanes-Oxley act. It is important to note that we are talking as well about some environmental and human safety issues at the workplace. It would make people responsible for their actions and they no longer would be able to hide behind a corporate identity or symbol. It would actually bring to the forefront people who make decisions and who are derelict in their duties.
This is something that is actually important and exciting, because it gives those people providing good, stable jobs with the best practices the ability to compete with those who cheat the system.
This package intended to maintain investors' confidence in Canada's publicly traded companies includes spending of $120 million over the next five years, together with proposed amendments to the Criminal Code. The money would go towards the creation of six integrated market teams, IMETs, made up of RCMP investigators, federal lawyers and other experts.
That in itself is acknowledgment once again of systemic problems. We have a government that has a record of dismantling public service and privatizing. That is the record over the last 10 years. The government is now admitting it needs to create another body to deal with this problem. If it is $120 million, I do not believe that is going to be sufficient, because the document itself outlines the fact that government is going to go after the major perpetrators, that they will not be able to get to the other ones. The government is scratching the surface with this.
Despite that, the $120 million may not even be enough money for policing the greatest of crimes. Hopefully when we get to the committee stage we will hear from delegations and from witnesses and experts who will bring numbers forward. I would expect that suggestions will be made to raise that amount of $120 million to provide for appropriate legal repercussions and prosecution so that people do not get away.
Bill C-46 makes insider trading a criminal offence with a 10 year sentence. The bill targets employees of corporations and others who use privileged information not available to other investors to benefit themselves. That is a significant achievement in itself. It shows that there actually will be some repercussions. I do not believe that is enough. I will get into that later with a comparison of what is happening in the United States. I believe we need to go farther than that.
It also creates a new offence punishable by up to five years in jail to prohibit intimidating or retaliating against employees who report fraud and other unlawful practices or conduct in the financial markets. This will protect employees from employment related harassment and punishment; that is whistle-blowing. Members of the New Democratic Party have been calling and advocating for whistle-blowing protection for many years. It is a good feature to have, but five years is not enough to protect an employee.
We know that some of these people may not necessarily even get prison time. They could be out and they could also hold other jobs with competitors. They could have inroads with groups, organizations or other investors and that could have a repercussion on employees. I want to see greater detail on how we can protect those employees to make sure that when they step forward they have the confidence that not only will their business will support them, but also that outside of that the Government of Canada and the institutions of justice will protect them and their family.
Without that, we are going to lose many files. We will see many cases requiring more investigation and cost. We have to simply say that we will not let people hang out to dry by themselves, that we are going to protect them and their families when they have the courage to step forward. That has not happened enough in the past.
Right now the bill also codifies non-mitigating factors. For example, if a corporation has been a good corporate citizen and used that leverage, then it will be used against a corporation not to lessen a fine. That is an improvement. That is a first step and there is no doubt about that.
I think we should be looking at other things over a company's history to see what taxable deductions it has been using. Has it been lunches? How much booze has been written off? What about the environment? Has it actually caused environmental problems and written them back as a tax deduction? That can currently be done in the government's program. A company can spill or create a toxic waste and actually get a fine and then at the same time claim it back on income tax. Has the company done these things?
There are political donations, golf games, and all the different things that a company has used through their system. They should be examined. The corporation should be made to pay it back if it has actually had someone on the take or was basically using information or those experiences to better their position or to share that arrangement amongst people. The reality is that taxpayers end up paying for that as they write off those deductions. Taxpayers are subsidizing those deductions. All of that should be added to the actual bill.
Right now Bill C-46 creates a new procedural mechanism by which persons will be required to produce documents, data or information in specific circumstances. One of the good things about the bill is that these production orders may be issued without another party's knowledge, which will allow investigators to gather evidence from third parties such as banks and auditors without tipping off the subject of their investigation.
That goes back to my position on whistle-blowers. We would be able to save millions of dollars, strengthen cases and ensure that justice would be done if we can get that information and cooperation, but that takes the confidence of those people stepping forward. As it is right now, I do not believe the bill provides that confidence. It does not provide that ironclad commitment required. We know that this type of system will actually create better opportunities for us to prosecute and to be successful, but once again, that has to be enshrined in such a way that people feel protected.
As things stand right now, there is a deterrent effect. Punishment for fraud would increase from 10 to 14 years, for fraud affecting capital markets from 10 to 14 years, and for market manipulation from 5 to 10 years. I believe that is not enough. That has to change. We should be looking for stiffer penalties. As well, if damages are over $1 million fines could be increased. Perhaps we have to look at lowering that $1 million. I am not sure whether I am comfortable with that and I am looking forward to hearing witnesses come forward to discuss that.
The bill also allows the Crown to prosecute for insider trading. That is very important. We think that should move forward right away.
One of the concerns we do have with the bill it is that there are still some vague definitions involved. There is an issue of vague information in regard to insider trading, that is, how significant is significant? The definition is not there. We know that there can be increased penalties because significant information comes forward or there is significant alteration on the market, but who is going to define that? I do not think that leaving this entirely to the courts is good. Whether it is a 15% drop in the stock or a financial issue affecting later performance, those are things we have concerns about. We would like to see these further defined.
There is another aspect of Bill C-46. Once again I will go back to whistle-blowing; I can do this quite a bit because we have been talking about whistle-blowing for years. Instead of amending the Criminal Code we should keep the broader definition of extortion so that it still exposes offenders to an indictable offence punishable by life in prison. What we can do is make sure that it is one of the harshest penalties out there.
There is no mention in the bill of accessories to fraud or wilful blindness. I am going to go through a brief scenario on Enron to give an example of some of the weaknesses of the bill that we need to discuss. Obviously the offence of fraud requires an element of intent to deceive, but what happens when there is no intent to defraud yet the failure to act allowed the deception to take place in itself?
For instance, let us take the example of the Enron fiasco, which in part prompted this legislation. There, the accounting firm of Arthur Andersen admitted to making “errors in judgment”. It shredded thousands of documents relating to its audit of Enron and suspected or knew that Enron was breaking security regulations.
Most cases prosecuted under this legislation will not involve outside firms such as accounting firms so closely involved in the actual offence, but the example illustrates how an outside firm's omissions can contribute to commission of the offence itself. That is why under Bill C-46 we need to explore the possibility of imposing a legal duty on outside firms dealing with financial statements or companies to take reasonable steps to verify or scrutinize the accounting practices of their clients to expose them to criminal liability.
It is not good enough to just pass the buck. We would have those groups and organizations that are actually paid as businesses having to show their confidence in what the corporation has put forth to the market to prove and back up what they have done; they could not hide. That is one of the weaknesses of the bill. It does not go after them the way it should and it would allow situations like that of Enron to continue to happen.
It has become obvious that it is not practical to rely only on the deterrent effects of criminal legislation to prevent such disasters. What is needed are better watchdogs to oversee the affairs of corporations and to ensure that businesses' accounting practices comply with the law that all material information is being disclosed.
Once again it goes back to the whole concept of whistle-blowing to gather that information and ensure that it can be used, and it cannot be just the corporation. We must have those accounting firms responsible. They as well would be responsible. If we look at some of the accounting cases, and I am going to read out a couple of them, we know that they are very important to the actual criminal liability issue. One is Enron, as I mentioned. I will not go through that again except to say that basically in 1997 it overstated its earnings by about $600 million U.S. It should have been responsible and so should all the partners who signed off on that.
Tyco allegedly avoided payment of $1 million U.S. in sales tax on $13.2 million in artwork. They did not show that. They should have been responsible. Adelphia Communications lent billions of dollars to the founders, the Rigas family. The family relinquished control of Adelphia which had defaulted on $7 billion U.S. in debt and filed for chapter 11 bankruptcy protection on June 25. Once again its loan documents and information were not accounted for. Livent is another one where financial records were manipulated to hide losses of $100 million.
Once again, those who sign off on this business need to be responsible and should be considered as part of the offence in itself.
I am going to compare some of the differences between the United States and Canada as we discuss Bill C-46.
Right now for insider trading, Canada gives 10 years in prison. In the United States, the maximum sentence for insider trading is going to increase from 10 years to 20 years, with a fine of up to $5 million U.S. That is the minimum.
For threatening whistle-blowers in Canada, there is up to five years in prison. In the United States it is going to be up to 10 years in prison.
On increased enforcement, they are actually going to be hiring 200 new investigators, lawyers, and auditors and establishing an accounting oversight committee to monitor and regulate accounting industries. That once again goes back to my argument on the accounting, that they are actually identifying that and providing a resource for that.
The sentence for fraud in Canada is raised from 10 years to 14 years. In the U.S. it is actually going up to 20 years in jail.
I agree with the debate about whether or not there should be minimum sentences provided. My concern quite frankly is that a judge could give a minimum sentence which would not act as a deterrent. A person would get a couple of years perhaps and there would be no real repercussions on his or her life beyond that. Maybe there would be some professional repercussions but it would not be the same compared to the businesses and the families that had lost their savings and their ability to plan financially for their futures. I have some real concerns that we may not get the type of deterrents we are seeking.
The government needs to look at this. We need to focus if we are really going to attack this problem. It is systemic. It is not something that happens to one or two companies. We know that fraud occurs and market practices are very vulnerable to a number of people who are taking advantage of the system. We need to be in front making sure that justice is going to happen.
We have a different perspective on corporate crime here in Canada. We see street crime and we act on those things a little differently, but regarding white collar crime we have done very little or nothing at all. That has to change. This bill should move quickly through Parliament to ensure that Canadians are protected and that their investments are there for the future.
A motion to adjourn the House under Standing Order 38 deemed to have been moved.
