Justice Committee on Nov. 23rd, 2009

[The Chair, Conservative, Ed Fast]

I call the meeting to order. This is meeting 49 of the Standing Committee on Justice and Human Rights. Today is Monday, November 23, 2009.

You have before you the agenda for today. We're continuing our review of Bill C-52 and have with us a number of witnesses in two different panels.

Mr. Comartin, you sent me notice about a possible point of privilege. Did you want to raise that now or at the end of the meeting?

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

I'd like to raise it before the end of the meeting to make sure we have sufficient time to deal with it. I'm just waiting for Mr. LeBlanc, because we had discussed this with him earlier and wanted him in the room if this requires a vote. I would suggest perhaps what we do, Mr. Chair, is take the statements from the witnesses, but before we go to questions I'll move my motion at that point.

[The Chair, Conservative, Ed Fast]

In the interests of being fair to the witnesses, because we have two panels, not just one panel of witnesses, could I suggest that we leave 20 minutes at the end of the meeting, say at 5:10. Would that be sufficient time?

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

I'd be prepared to concede that at 4:30, when the other panel comes, we start it at that point.

Bluntly, Mr. Chair, I'm concerned about it getting talked out. I need the resolution of this committee's findings for tomorrow morning based on the fact that it's a point of privilege and we have to act on it quickly or the Speaker will not entertain it. I'm very concerned about it being talked out if we only leave 15 or 20 minutes at the end of the meeting.

[The Chair, Conservative, Ed Fast]

All right.

I'm also cognizant of the fact that we want to be fair to both panels. If in fact we're going to deal with this after the first panel, I'm going to have to cut the first panel short by at least ten minutes; that's just the reality of it, to make sure each panel has the same amount of time. I want to be sure everyone understands that. So we'll deal with the first panel, then deal with your point of privilege, and then we'll move on to the second panel.

We have before us a number of witnesses. First of all, we have Diane Urquhart, independent financial analyst. We also have with us Gary Logan, detective sergeant retired, Toronto Police fraud squad; and finally we have, representing the United Senior Citizens of Ontario, Ken Cunningham, president.

All three of you have been briefed on the process. Each of you has ten minutes to present, and then we'll open the floor to questions from our members.

Who would like to start? Ms. Urquhart.

[Diane Urquhart, Independent Financial Analyst, As an Individual]

Good afternoon, ladies and gentlemen.

If I can, I would request of the French-speaking members of the committee that I may pass out this presentation I'm going to speak to today. Otherwise, I'll just start.

[The Chair, Conservative, Ed Fast]

If it's only in English, you can't circulate it.

[Diane Urquhart]

Okay. The reason we don't have it in French is that we were only invited on Thursday of last week. Unfortunately, we had a very short period of time to prepare. Otherwise, I certainly would have liked to make that available.

On Friday, November 20, 2009, PricewaterhouseCoopers released its global economic crime survey, and it determined that Canada is the fourth most fraudulent country out of 54 countries. The countries that were ahead of us and deemed more fraudulent were Russia, South Africa, and Kenya. Just behind us was Mexico and the Ukraine. This new study is quite alarming, though it's not a surprise to those of us who have worked in the investment business and who have worked with a substantial number of victims of white-collar crime in Canada.

At the moment, I'm working with the Nortel long-term disabled and the pensioners and the severed workers. As many of you are aware, the Nortel situation began as a result of allegations of accounting fraud and the executives being preoccupied first with manipulating the books and then needing to correct the books, and taking their eye off the ball in this rapidly changing industry. The victims of white-collar crime are therefore not only investors, the shareholders and the creditors of corporations, or seniors that are defrauded by unlicensed advisers. The victims of investment fraud can also be the employees of companies that are unable to turn themselves around after they have been the subject of fraud.

On September 15, Hugh Urquhart and I, the United Senior Citizens of Ontario Inc., and the National Pensioners and Senior Citizens Federation attended a media conference in the Charles Lynch Room here in Ottawa, calling for a crackdown on white-collar crime. The nine victim groups who participated in that conference were the ABCP Retail Owners Committee, the Nortel Bankruptcy Justice Committee, the Norshield Victim Group, the Earl Jones Victims Organizing Committee, the Shire Victims Committee, the Norbourg Victims Committee, the Progressive Management Victims Committee, and the Mount Rea Victims Committee. All nine of these victim groups came to Ottawa to request stiffer sentences for white-collar crime. In addition, they called for a minimum sentence period of two years, and they also called for a longer period before which a white-collar fraudster could make an application for parole, from the one-sixth that is in place today.

Basically, these victim groups indicated at the time the intention to file Bill C-52 was announced that they supported the general provisions of the bill.

Personally, as an independent financial analyst who has worked in the investment industry and has worked extensively both in the courtroom and outside of the courtroom with white-collar crime victim groups, I agree with the general thrust of the bill.

I do agree with the two-year minimum sentencing for offences that are collectively over $1 million. I think Ken will tell you in a moment that there is some confusion as to whether that applies to a single person defrauded of $1 million, or whether it is cumulatively applicable to all offences and all persons or corporations that are affected. I believe the intent of the law is the correct one. It's the accumulation of the losses that are borne by all of the parties that are impacted by the white-collar fraud.

We particularly like the provision that makes reference to extenuating circumstances leading to a judge being more likely to give a higher sentence if the persons defrauded are in personal circumstances where they were able to be taken advantage of because of age, health, and financial situation.

I agree it is important to take into account whether the rogue adviser is licensed or not. I would note, however, having spent a career in the investment business and as one who specializes in systemic fraud in products that are distributed by the licensed financial advisers of Canada, that this should not be an intent to imply that because you are unlicensed you would likely be a worse offender of the Criminal Code than if you were licensed. I can certainly say that through my experience in working with income trusts and working with asset-backed commercial paper, and as we have seen in the subprime market of the United States and in the abuses in the credit default swap market, there is systemic fraud in the licensed financial industry as well.

I want to note that the stiffer sentencing in the Criminal Code is not the only answer. It's important for deterrence, in my opinion, and those who work in the investment industry tend to be significant members of their communities. So if there is going to be a minimum jail sentence, there's no question, in my mind, that this will be of greater deterrence than for someone to be given sentencing that would involve community service or simple probation. So I do support the minimum two years as being a significant deterrence for people who commit financial fraud.

I want to move to a view I have that there is significant restructuring required in the enforcement systems of Canada. In addition to the National Securities Commission, which is being put forward by the federal government, we think it's critical that there be a restructuring of securities crime policing in Canada. I believe we need to move to a system where the Royal Canadian Mounted Police integrated market enforcement team is not the effective exclusive enforcer of the Criminal Code as it relates to financial fraud cases.

We believe we need to do a restructuring. My colleague Gary Logan is going to describe the nature of the restructuring that is required to improve the effectiveness of securities crime policing in Canada so that there are more investigations taking place, more successful prosecutions, and a greater ability for the Criminal Code to be used for the purpose of deterrence. But the sentencing, you would all know, is not the answer itself. You need to have successful prosecutions in the courtroom.

I'll make a final note with respect to the RCMP, which I believe is going to make presentations after us. It's my view that the RCMP should not be moving forward with a model of integrating its enforcement activities as a division of the National Securities Commission.

I attended a function last week and it has already been on the public record that the Investment Industry Association of Canada and the Canadian Coalition for Good Governance are seeking to have criminal police become a division of the new National Securities Commission, and I strongly recommend against such a model. Even in the RCMP, in policing activities today as it applies to financial fraud.... We have a letter from the head of the RCMP that indicates that no RCMP unit commander can initiate a financial fraud investigation into possible fraud that has taken place within the investment industry until they have had an approval to proceed with that investigation from a joint consultation group. The joint consultation group is made up of the self-regulatory organizations of the investment dealer industry and of the Mutual Fund Dealers Association. I put forward to you that no other democratic country, in my opinion, would have a financial fraud enforcement function. Criminal investigations require the approval of the self-regulatory organizations of the industry that is being investigated.

So I strongly recommend that the current practice of requiring the self-regulators to approve financial fraud investigations by the RCMP be terminated immediately. We also recommend that the National Securities Commission not be given the authority, under the new Securities Act or any other provision, to be the enforcement body that is administering the Criminal Code of Canada.

Thank you.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll move on to Mr. Logan for 10 minutes.

[Gary Logan, Detective Sergeant, Retired, Toronto Police Fraud Squad, As an Individual]

First, I read through Bill C-52 and I'm very pleased with what I read, because in the years I've been investigating and dealing with corporate fraud with the Toronto Police Service, I've certainly seen a lot of change with respect to the way this is being managed. I'm very pleased, particularly with the sentencing, because, I don't care what anyone says, if somebody at the end of the day is convicted and there's the reality of their going to jail--and I think we've all witnessed this through comments and through people we've seen in the newspaper moving outside of or attempting to get back into Canada--jail certainly works. It's a definite deterrent. I've heard this from other people in dealing with people who have committed these crimes.

One thing I am concerned about--maybe not so much concerned, maybe that's a poor choice of words--is the restitution. It has been my experience, in all the years I've been dealing with this, that the restitution orders issued by the courts are really only in effect for the period of probation. At the end of the probation, if the restitution is not made, where does this leave the victim? The enforcement component of the restitution and the period of probation is very rarely ever enforced by the law after that.

The court also has the authority to issue what is referred to as a compensation order. A compensation order can be applied through the crown to the court as long as the victim is in court, at which time the judge, based on the facts and circumstances, can issue what is referred to as a compensation order. In my experience, that has always been a more favourable choice and direction to go in. Restitution I've always been a little leery of, because that only runs for the period of probation and nobody is monitoring that period of probation to ensure that victims are being compensated properly. At the end of the day, probation is over, there is no restitution, and the victims are back at square one.

So that may be something you want to consider, or at least think about, to ensure that this issue is looked at. Other than that, I'm very pleased with everything else I've looked at with respect to the changes forthcoming in the bill.

The other thing I want to speak to today, and Diane touched on it, is securities crime. I probably spent the better part of 16 or 17 years investigating corporate fraud. Over those years I've had many years of dealing within the securities industry in particular and the market where fraud and allegations of fraud have occurred.

In years gone by, there was a set procedure, a set format, whereby an intake process was set in place for all crimes relating to fraud. Victims would attend or at least deal with the police. At that stage there would be an intake process, an assessment or triage of what had occurred. Based on that, the police would make a determination, based on the facts and the evidence readily available, whether to proceed to the next step, take on the case, and conduct the investigation. That worked very well for all types of crimes, particularly fraud.

Since about 2003 there has been a change in that, a shift in who would be looking at the investigations occurring within the securities industry. From that time forward, from where I've sat and from what I've seen, to me, all that has done is increase the state of confusion for the victims and for our officers. What I mean by that is that there is uncertainty as to who really will be taking the lead in conducting the investigations. There's the uncertainty as to where the victims are able to introduce their complaints into a police environment. The way it stands now, the first person many of these victims who go to police services are going to meet will not, for the most part...and it's no fault of the officers. Officers have a very difficult time understanding fraud at the low level. This is why it's critical to have the appropriate people in place within police services who understand all the components of fraud and criminal laws that pertain to them.

So I'm proposing we set up a securities crime unit composed of 22 officers and one executive assistant. Quebec recently brought in 22 police officers plus three special crowns to deal with fraud, at a budget of $6 million. I've worked this out, and the way it stands nationally, with 22 plus one executive assistant, it can be done for $5 million.

It's a very effective system, a very effective unit. It works on the basis that they are very motivated and highly skilled officers who have the ability to understand and determine what is and what is not fraud. They have the ability to understand, manage, and control evidence. They're able to meet with victims and understand exactly the nature of their complaints. They can very quickly determine what is fraud, what is not, and what can be investigated. They have the ability to very quickly understand the jurisdictional authority and determine which police service has the ability to investigate the alleged crime. It may involve more than one police service.

Once it is determined that an offence has taken place, the securities crime unit prepare a package based on the documentation provided by the victim. They ensure that the package is prepared in a format that can be received by any police service in Canada, at the introduction level, on the basis that a criminal offence has taken place. Once that is done, an investigator is assigned and the investigation moves ahead.

There is always a point of reference with the securities crime unit to the police service engaged in that investigative process, and they work directly with the public. The nice thing about it is that it's a stand-alone operation.

Something that has always been criticized and has created a lot of problems and grey areas occurs when you engage a police officer in a relationship that is too close--by design or perception--to a regulator or any other person or group that has specific authorities under specific acts, and things can be piggybacked for criminal purposes on a provincial statute under that authority and used to further a criminal investigation. Whether or not that actually occurs, any time that moves forward into a criminal environment there's always the risk that the case will be finished due to concerns about compromise and movement and migration of authorities and evidence.

That perception has occurred on many occasions. In some cases certain document flows have moved from one side to the other and have affected relatively good criminal investigations. The investigations were ruined, and they were not able to move forward from that point.

This unit is completely stand-alone. There's a hierarchy that's audible as you get into it. There's public accountability on the entire system from all levels of government. It falls under a police services board. There's everything under the federal public minister. There's reporting to the Standing Committee on Public Safety and National Security. So it's completely open and transparent and is reportable through all levels of government above it.

It also works with all police services. In this day and age, I don't know why we are not engaging all of the resources currently available to us. Most police services have a fraud component within them. I know for a fact that they are very good, competent, and skilled investigators. I've worked with a number of them. I've known a number of them for years and I know their abilities. I'll tell you right now that in this country the fraud investigators across Canada are probably some of the top investigators on the continent. So when I hear stories about people saying that the police do not have the ability to understand these sophisticated types of crimes, I do not buy that for a moment.

We have to be able to get outside of the box from where we are now. The securities crime unit will engage all the resources of all the police services--including the RCMP--and get them actively involved in investigating these frauds that occur within their jurisdictions.

It's set up to work with all police services--provincial, regional, municipal, and federal. Based on that, it's a good system and it's a working system. It has worked for a number of years at different levels in police services and in policing for the basic fundamental intake assessment and investigation of crimes. All I'm doing now is looking at it on a larger scale, increasing the level, and specializing the core functions of people who take on this role in their ability to work with the public directly, prepare packages, refer to the police, work with the police, and move from that point forward.

When a complainant walks into a police division district today to talk to an officer, nine times out of ten there is a great deal of confusion as to who will conduct the investigation. Unfortunately, after 2003 most police services believed that if anything had to do with securities, the victim was automatically referred to IMET for the purposes of that investigation. That has created a lot of public frustration at the end of the day as to how these are managed.

I'll wrap it up at that point. That's basically what I am proposing and what I've put together.

Thank you.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll move on to Mr. Cunningham for 10 minutes.

[Ken Cunningham, President, United Senior Citizens of Ontario]

Thank you.

First of all, I would like to say thank you for the opportunity of bringing a senior's point of view to the committee on this subject.

We do wholeheartedly support the amendments that are being proposed in Bill C-52. The only thing is that, in my point of view, there are a couple of things that are not there.

The first one is the point of restitution. For these people, it's not automatic; it's something that has to be applied for. The victims have to make it known that they want restitution. Many of them are senior people who do not have the skills and are not computer literate. Many of them don't even own computers, let alone being literate with them, to be able to obtain this information. So I think when the perpetrators are charged and convicted with the fraud, the point of restitution should be automatically there. As I heard earlier that it only lasts for the time of the sentence, I think this is something that should be reinstituted: that those people still owe that debt until that restitution is paid, even if it's for the rest of their lives.

Seniors are probably more vulnerable than anybody else because many of us grew up in the time and day when your name was your reputation and your means of doing business was very often with a handshake. Properties changed hands without any paperwork because two people agreed that one was going to sell a piece of property to the other one, and they shook hands on it with the price. When these people are offered something that looks almost too good to be true to them, they don't have the skills because they've never run into this in their lives. Society has changed, and that is no longer a way we can do business. We have to be more vigilant. I think Bill C-52 is one step along that road.

The other thing I notice in Bill C-52 is that the person who is the actual perpetrator of the crime is the only one responsible. Most of the people who have been charged so far are people who have worked for large companies in the investment business, and there is nothing in there that says the company has to bear a responsibility. Any place I've ever worked at, I had a supervisor looking over my shoulder, and I think probably this is the case there, but obviously the supervisors aren't looking over their shoulders in order for them to be able to do this. I think the company also bears a responsibility.

We're also in favour of the crime unit that Mr. Logan has suggested. This is because, with these seniors, when they go to report it to the police, they say, well, that isn't what they do; they've got other things to do that are higher priority, such as somebody being robbed or mugged or something of that sort. But with the crime unit, they have a special place to go where it will be looked at and some action taken on it.

We definitely support the bill as it is, and we hope further things can come of it.

Thank you.

[The Chair, Conservative, Ed Fast]

Thank you very much.

Given the fact that the time is going to be quite short—we basically have 20 minutes in which to ask questions—I would ask the committee's indulgence to restrict questions to five minutes. Is that all right?

Ms. Jennings, perhaps you would like to start.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

Thank you. I just have one question, and then I'll pass it to my colleague Madame Mendes, who also has one.

My reading of Bill C-52 leads me to believe that it would only create a minimum mandatory for someone who's convicted of a general offence of fraud. It does not create a minimum mandatory for someone who's convicted of fraud affecting the market—fraudulent manipulation of stock exchange transactions, insider trading, or false prospectives, as in the case of Bre-X—regardless of whether the total amount of the fraud was $10 million, $20 million, $30 million, or $40 million. So I'd like to know if you believe that the minimum mandatory that's being proposed for general fraud should also apply to these other offences, many of which were brought into the Criminal Code in 2004.

Go ahead with your question, so that you get it in.

[Alexandra Mendes, Liberal, Brossard—La Prairie, QC]

Thank you for being with us today.

Mr. Logan, you mentioned the police powers of investigation that you feel are needed. I assume that you are proposing that they be national in scope. Which resources do you consider are required to establish an investigation team of that nature?

[Gary Logan]

To answer the first question, any time that anybody is incarcerated for committing a criminal offence involving fraud, I would welcome that. I'm not an advocate of house arrest; it has to be institutional. But they should be included as well. And I think there should be a minimum with respect to fraud, because we all know in this room that all proceeds of crime enter, if you allow it, other criminal enterprise and activity. To me, if we can stop it at the source, certainly it would be advantageous. So no, I agree, and that should be the case as well.

In answer to the second question, the resources would be drawn from police officers who have the ability, the training, and the understanding of the Criminal Code in both criminal evidence and evidence management, and they would be drawn from across Canada for the purposes of setting up a national securities crime unit, independent and separate. So in each region one would be established and set up to work in harmony with the existing police resources and police services, yet they would be working directly with the victims of these crimes for the purposes of assessment, review, document preparation, and introduction into the police services having jurisdictional authority for the investigation.

You can take Toronto. With the current intake system that I had a major part in putting together, I had two people working there, and over the period of a year they would assess probably about a thousand occurrences, a thousand reports. This means that the two of them would have to assess each and every one of those reports before they were brought in.

So is it something that can be realistically accomplished? Yes, it is. But it all comes down to the resources of the people selected to perform the function. And I know there are people out there who have the ability to do this.

[Alexandra Mendes, Liberal, Brossard—La Prairie, QC]

Would the RCMP be in charge of supervising this Canada-wide team, or would the groups report to their local police forces, the SQ, for example, in the case of Quebec, and the OPP for Ontario? Could you tell me how the structure would be set up?

[Gary Logan]

No, they would not. The RCMP would be involved because it is the national police service. They would probably form a key component of the members identified within that region to service that region. But the actual crime unit itself would report to the provincial board. That's where the oversight would occur. What I want to do is take it out of the federal environment where it currently exists today, completely remove that as a stand-alone. What I wouldn't want to do is put everything back into an environment where there is that chance it's going to go back to where it was.

So yes, they will be involved. Yes, they will participate actively. But no, the reporting will be structurally totally different.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll move on the Monsieur Lemay.

[Marc Lemay, Bloc, Abitibi—Témiscamingue, QC]

Thank you for being here.

I have been listening very carefully to the discussion for some time. Coming from the Conservatives, it does not surprise me, although I am a little surprised that section 741 of the Criminal Code, dealing with the enforcement of a civil remedy, has been so little used.

Mr. Cunningham, I suggest that you re-read section 741 of the Criminal Code, or have your legal counsel read it. It is significantly underused. The Conservatives want to include a lot of things, but provisions on restitution orders are already in the Criminal Code.

I also listed carefully to Ms. Urquhart's remarks. Do we agree that white collar criminals are probably some of the cleverest you can find?

[Diane Urquhart]

Yes.

[Marc Lemay, Bloc, Abitibi—Témiscamingue, QC]

Under those circumstances, whatever legislation we pass, this useless Bill C-52 that we have before us, for example, we will get nowhere until we do away with tax havens. The problem is that we are not able to follow the money. White collar criminals do not bury their money in their gardens. They generally bury it on some island in the sun, in the Caribbean, or some other tax haven.

Do we agree on that?

[Diane Urquhart]

I would make a point that there is systemic fraud in the investment products sold by the investment banks and banks of Canada. This fraud produces profits that are not taken to tax havens. These profits show up simply as return on equity for the banks and improved share prices. So from that perspective, I would say no.

In the case of many of the Quebec crimes, I would agree. For example, it's alleged that the money in the Norshield is not on Canadian soil. The problem, I would say, is not that we can't find the money, but that we don't even have anybody at the front end to start the criminal investigation and follow the money. I'm not discounting the need for greater provisions to find it. I'm saying that in many cases we don't even have the expert police working to start an investigation when the money has gone offshore. They don't have the expertise or the funds to track it down. Even with changes in the Criminal Code directed at tax havens, even with inter-country agreements, we need to take the white-collar crime jurisdiction outside the RCMP, put it in a unit with experience in forensic policing, commit sufficient funds, and assign more police to get the criminals charged, get them successfully prosecuted, and find the money.

[Marc Lemay, Bloc, Abitibi—Témiscamingue, QC]

I agree with you there, but the problem is even wider than that. You mention the people who take advantage of insider information, and I agree. But the people who steal from seniors—their retirement funds, their cash, and so forth—have to have been planning the swindles for some time.

What do we do when we feel that a major swindle is in the works? Thieves like that do not get into the business overnight; they take time to get ready. How do we go about detecting that? Can we detect it?

[Gary Logan]

Some of these activities are very difficult to detect at the front end. Most times, if not all times, police engagement comes because these offences have taken place and we have quantified victims. At one time in Ontario, I was a member of the security enforcement review committee and the joint agency intelligence liaison committee. They were regulatory and police based. We would have ongoing discussions about different trends, engagement techniques, and people. But that ended around 2003, which was when IMET came to be.