Evidence of meeting #50 for Finance in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cabinet.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Clerk of the Committee  Mr. David Gagnon
Benoît Robidoux  Associate Deputy Minister, Department of Employment and Social Development
Marc Tassé  Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

5:40 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Thank you.

Yes, we are talking about due diligence here without necessarily going as far as enhanced diligence.

I believe there were actually many red flags. Every one of the flags had to be documented. That is very important. You cannot just look away and say, “it is okay, we are in a hurry.” No, each of the flags you listed must be documented. You must do the work, asking for additional guarantees or other explanations. You have to do the work, document it and disclose it.

August 12th, 2020 / 5:45 p.m.

Bloc

Rhéal Fortin Bloc Rivière-du-Nord, QC

Thank you, Mr. Tassé.

5:45 p.m.

Liberal

The Chair Liberal Wayne Easter

Thanks, both of you.

Now we have Mr. Julian, who will be followed by Mr. Cooper.

5:45 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Thank you, Mr. Chair.

Mr. Tassé, thank you for being here today. It is very important. We hope that you and your family are staying safe during this pandemic.

You have accurately described the principles around integrity, transparency, access, monitoring and controls, which are major indicators of sound administration.

My first question is about the role of lobbyists.

Whether we are talking about Canada or another country, when an organization or a company representative meets with a minister or their chief of staff, does it matter if that person is registered as a lobbyist so that it is very clear what type of relationship they have?

5:45 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

I think so, if the goal is to seek contracts. I would even say that it is a requirement. The idea is not that it would be good to be registered as a lobbyist, it is actually a requirement to be registered and to declare the purpose of the meeting as such.

5:45 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Thank you very much, Mr. Tassé. That is one of the things that have come out in the last few days.

You talked about all the various issues related to transparency. When a government gives contracts, is it important that this be done in a transparent and accessible way for everyone and that all non-profit organizations or all businesses be able to submit their bids for a program like that?

5:45 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Yes, transparency is one of the fundamental rules.

First, the information must be documented and gathered. Then, it must be circulated, meaning to ensure transparency. We must not disclose only the information that we deem favourable to our decision, we must disclose all the information. So transparency is crucial.

5:45 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Okay.

In addition, people who manage other not-for-profit organizations, not just a few people who have that knowledge, might be able to bid.

5:45 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Yes, of course it is always better.

That is why we said that we issued an open call for tenders. It is therefore open to everyone.

Earlier, I talked about accessibility. It must be accessible to the majority of businesses that have the minimum necessary qualifications.

5:45 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Okay.

You have a very broad experience in terms of jurisdictions in North America, but also globally. Looking at the work you have done, one of the things I gather is that it is important to comply with standards.

The program we are examining has actually violated various standards, such as labour codes, minimum wage codes, but also the codes of ethics for teachers.

In terms of the integrity of a program, how can a government act to ensure that it is in compliance with all the standards and other legislation, be they provincial laws or the codes of ethics in place for those affected by the program?

How can we establish something that does not violate any laws or standards?

5:45 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

We can do so by implementing what is called an integrity program.

An integrity program is a program that includes compliance in particular. That would make it a compliance program. It is a matter of identifying all the rules and procedures that apply both nationally and internationally. Then, the various risks are assessed, and procedures are put in place to ensure that significant risks are controlled. Controls and procedures are then put in place.

However, once again, in times of crisis, things are always a little different. Nonetheless, if procedures are not followed, the reason why they were not followed and the potential consequences should be documented.

A risk assessment should always be done. So that's part of the risk assessment.

5:50 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

That's what the real problem is. That's why the committee is studying this program in depth, because there does not seem to have been any risk assessment or due diligence of the program. But in terms of monitoring and control, you said that it is essential to have all those due diligence processes in place.

In your presentation, which was very good, by the way, you also mentioned that, if we don't follow those processes, dangerous shortcuts may be taken like the ones in the cases you're aware of.

In your opinion, in the case of WE, did the government take dangerous shortcuts?

5:50 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Unfortunately, it is difficult for me to answer that question because I do not know whether shortcuts were actually taken. I only know what was communicated by the media and I did not have the opportunity to see the documentation that was submitted in support of that decision. So I would not venture to say that shortcuts were taken.

5:50 p.m.

Liberal

The Chair Liberal Wayne Easter

This is your last question, Mr. Julian.

5:50 p.m.

NDP

Peter Julian NDP New Westminster—Burnaby, BC

Thank you, Mr. Chair.

Here's my last question. When a government awards a contract to an organization, is it important to evaluate the internal workings of the organization? As we know today, WE had financial problems. Its board of directors had asked to see its financial statements, but its members were fired.

How important is it for the public administration to evaluate the organizations with which it does business, as well as their internal operations, in order to ensure that we avoid dangerous shortcuts, as you mentioned?

5:50 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

That is very important. The risk is inherently very high and we must protect the money that comes from the departments. So if a company is in financial difficulty, it is important to know the reasons and the financial controls in place to protect the money that is going to be transferred. This will ensure that it will be used to carry out the required tasks and that the project can be completed.

The risk is really very high. In such cases, we usually ask for more information, ask questions, validate the answers, and seek additional assurances. For example, we ensure that governance is characterized by transparency and information sharing, and that competent people sit on the various governance committees.

5:50 p.m.

Liberal

The Chair Liberal Wayne Easter

Thanks, both of you.

We now have Mr. Cooper, who will be followed by Mr. Fraser.

5:50 p.m.

Conservative

Michael Cooper Conservative St. Albert—Edmonton, AB

Thank you, Mr. Chair.

Thank you, Professor Tassé, for your testimony.

When you elaborated on the issue of due diligence, I jotted down some notes. I believe you cited four cornerstones, including who the beneficial owners are, the legal structure, the governance structure and a detailed financial analysis.

Did I get that right?

5:50 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

You are right. The four elements to be checked are: the ultimate beneficial owners; the governance structure of the entity being approached for the contract; the legal structure of the organizations related and attached to the entity; and the detailed content of the financial statements and other financial reports of the entity.

Audited and consolidated financial statements are often requested. This is something I would like to bring to your attention. It is important to have consolidated financial statements, especially in the case of a number of related businesses that conduct transactions with each other. When we get consolidated financial statements, we remove intercompany transactions to have a more realistic picture of the various entities with which we want to do business.

5:55 p.m.

Conservative

Michael Cooper Conservative St. Albert—Edmonton, AB

Okay. Thank you for confirming that.

We've heard a lot of talk about due diligence, but when it comes to identifying the beneficial owners and the legal structure, the fact is that it was a real estate shell company, the WE Foundation, rather than the WE Charity. When we look at governance, we see that the board of WE Charity was in a state of chaos, with the chair of the board and more than half of the board resigning proximate to the time of the contribution agreement. Also, then, there's the fact that there was no understanding whatsoever of the financials and no understanding that the WE Charity had been in breach of their banking covenants.

Could you not argue that this is a sort of textbook case of what not to do when it comes to due diligence?

5:55 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Once again, I cannot answer that question, because I have not seen the information that was gathered, the information that was communicated, as well as the conclusions reached. So that would be speculation on my part. Unfortunately, therefore, I cannot answer.

Having said that, I would be very curious to know the justifications and the evidence provided in support of the file to justify the rationale behind our decision.

5:55 p.m.

Conservative

Michael Cooper Conservative St. Albert—Edmonton, AB

Maybe you could elaborate on why some of those factors are so important. They seem self-evident, but yet, based upon some of the questions of my Liberal colleagues, who seem to minimize issues around due diligence, and the excuses that have been offered by ministers and in media interviews that I've done with some of my Liberal colleagues, these things consistently are downplayed. Instead, they cite the contribution agreement. They note that there's a right to audit. They note that there's an indemnification clause. They note that there's an insurance clause. They say that's all we needed to know.

What do you say to that?

5:55 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

I emphasize that the four elements I mentioned are an essential part of due diligence. They are important factors because, in times of crisis, when companies are in financial difficulty, there can be changes in ownership. The government may enter into a contract, thinking it is doing business with a certain person, but in the weeks or days prior to that, the company has changed ownership. That is very important. We also have to check whether money is owed to outside lenders that the government would not necessarily want to be associated with.

Third party vetting ensures that these factors are investigated. It is important to see which third parties are attached to the entity with which a contract is being considered.

5:55 p.m.

Liberal

The Chair Liberal Wayne Easter

You can have a last quick question, Mr. Cooper.

5:55 p.m.

Conservative

Michael Cooper Conservative St. Albert—Edmonton, AB

I would just submit, Professor Tassé, that your testimony has been very helpful. You correctly noted that you just can't hurry a contribution agreement—but I guess you can if it's a matter of rewarding your friends.

Thank you, Mr. Chair.