Justice Committee on Nov. 25th, 2009

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

Ms. Joncas, have you done an analysis of thefts or frauds of around $1 million? Is a two-year sentence common? Is it generally lower, or higher?

[Lucie Joncas]

Experience in recent years, following the decisions by the Quebec Court of Appeal, shows that the sentence is higher. The courts are not reluctant to impose sentences of four or five or 13 years. I think that a sentence of two years does not reflect what the courts have decided, at this point. The courts impose much more severe sentences, in a majority of cases, where the circumstances are all taken into consideration. The fact that there will no longer be any discretion concerns us, however. Imagine a case where a person played only a minimal role and was convicted under section 21 of being an accomplice who aided or abetted the offence, but received no personal benefit from it. We are not talking about any benefit someone may have received, we are talking about the total amount. I am very concerned about the wording. It talks about

“the total value of the subject-matter of the offences”.

That really can be anything.

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

That is what I had understood.

Do you think there is another potential problem, that judges might start considering two-year minimum sentences as the standard sentence for major thefts and frauds? Is that a possibility?

[Lucie Joncas]

That might happen, but as I said, we are now seeing more severe sentences than what the bill provides for.

[The Chair, Conservative, Ed Fast]

Thank you.

I will move on to Mr. Moore.

No questions?

Okay, go ahead, Mr. Woodworth.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Thank you very much for being here today, Ms. Joncas.

I am intrigued by your comments about eroding the discretion of judges. It almost sounded to me as though you were saying that it was not legitimate for the legislature to impose restrictions on judges. I myself thank God frequently that I live in a democracy, and I cherish that precious fruit of democracy.

I want to make sure I understand whether or not your association agrees with me that citizens do have the right, through the democratic process, to insist upon minimum sentences for serious offences.

[Lucie Joncas]

I believe the Criminal Code as written can respect the rights of all citizens. I do not believe imposing such restrictions on judges is a good idea.

Yes, we live in a democracy, but I am not sure what the catalyst is or what the need is for such legislation when the crime rate is not going up and there is absolutely no proof that this will reduce crimes of this nature.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I fully respect as a democratic matter your right to disagree with the legislation, but I'm glad you are not suggesting that there is some divine right of judges not to have their discretion fettered by the legislature.

I have one other question. Do you understand that the provision in the act for prohibition orders is not necessarily going to result in prohibition orders that are as time-limited as probation orders, that in fact it is probably intended to result in prohibition orders that might exceed the length of probation orders, and that therefore there is a purpose in separating it from probation orders? Does that seem clear?

[Lucie Joncas]

If the judge believes a harsher sentence should be imposed, usually it will not be in a probation order. It will follow a term of imprisonment during which the correctional facility has the ability to impose such conditions.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I think I'm out of time, so I thank you very much for your answers.

[The Chair, Conservative, Ed Fast]

Thank you very much, Ms. Joncas. You are free to go whenever you wish.

What we'll do now is move to the other witnesses.

You have up to 10 minutes.

[Richard Dubin, Vice-President, Investigative Services, Insurance Bureau of Canada]

Thank you, Mr. Chairman.

The Insurance Bureau of Canada is the national trade association that represents Canada's home, car, and business insurers. As a national trade association, we have an investigative services division that has a staff of 59, of which I am the head. Our team includes a number of seasoned former police veterans who spend their days investigating organized insurance crimes involving staged auto collisions and auto theft. This is a very busy job for our people due to the growth in Canada of organized crime.

Insurance fraud is a big business in Canada. In just home, business, and auto insurance, it is estimated to be a $3-billion-a-year business. On average, 10% to 15% of all claims have an element of fraud. Consider for a moment that our industry paid out $25 billion in claims in 2008 and you'll see the scope of the problem. Let's be clear as to where that money has to come from; it comes from individual Canadians in the form of higher premiums.

Organized crime long ago saw an opportunity in insurance fraud. Why? Because it is a low-risk, high-profit business. The penalties are minor, and jail time is rarely handed out, even for cases involving substantial fraud. In the brief time I have here, I want to tell you about just one type of highly organized insurance fraud: staged auto collisions.

Phoney car crashes are a big business in the Greater Toronto Area, which is considered the staged auto-collision capital of Canada. These complex schemes frequently involve organized criminals linked with tow-truck operators, body shops, paralegals, and registered health care providers. I also refer to them as rehab centres or rehab clinics. In one particular investigation, which is ongoing right now, 41 staged auto collisions are alleged to have taken place involving fraudulent auto physical damage and fraudulent accident benefit claims. Further investigation suggests a possible 116 additional alleged staged collisions involving this criminal organization.

Altogether, we estimate that this one project alone could cost insurers and their customers between $20 million and $25 million in potential fraud. To date, over 200 charges have been laid against 38 individuals.

Staged collisions involve not only those intentionally causing the collision but also the innocent drivers who are placed at great risk of serious injury or death. Particularly dangerous is the “swoop and squat”, in which two cars intentionally box in the innocent driver. A third car quickly passes in front and then jams on the brakes, forcing the innocent driver to rear-end the vehicle ahead. The vehicle struck in the rear is usually carrying several passengers who paid for their seats so that they can claim to be injured. They submit fraudulent accident benefit claims, which are supported by rehab clinics.

In more elaborate schemes, a runner recruits drivers and passengers to play roles in a carefully scripted, choreographed, controlled crash. Bogus witnesses are positioned near the staged collision to support the criminals' account and to contradict the innocent driver's testimony.

IBC's investigative services investigates, on average, over 30 such projects a year. Unfortunately, those convicted and sentenced usually receive conditional sentences, and restitution is rarely ordered. In keeping up with organized crime, however, designated investigative bodies, like ours, and police and prosecutors need more tools. A strengthened Criminal Code to get tough on these types of crimes is a top priority, and we were pleased to see that the House of Commons has already passed Bill C-26 in regard to auto theft.

This legislation, Bill C-52, is another positive step that takes direct aim at the kind of organized criminals our industry battles every day. Tougher penalties for fraudsters will send a clear message that Canadians will no longer tolerate having their savings targeted by criminals.

It is time for the fraudsters' free ride to end, and Bill C-52 makes strong steps in that direction. We urge parliamentarians to pass this legislation.

Thank you. We would be pleased to answer any questions committee members may have.

[The Chair, Conservative, Ed Fast]

Thank you. And thank you for being brief; it’s very helpful, because our time is short.

Who will be speaking on behalf of the National Pensioners and Senior Citizens Federation?

Go ahead, Mr. Kube.

[Arthur Kube, President, National Office, National Pensioners and Senior Citizens Federation]

Thank you, Mr. Chairman.

I'll tell you a bit about our organization. It's been in existence for 57 years. It started largely in the province of Saskatchewan and it has grown to where we now have 380 organizations affiliated to our federation, with an approximate total membership in excess of a million individual seniors.

What has been happening in the last few years is that more and more of our members are depending upon their individual investments for their retirement income. As you know, the number of people who are covered by a pension plan has been declining for some time, and therefore a good number of our members have to operate in the market.

We appreciate that Parliament is moving on Bill C-52, and I think it's a step in the right direction. However, I want to assure the committee members and the chair that it's not quite sufficient for our members. Let me give you an example.

In the Bre-X case, you had a situation where it was a publicly sold security. Let me tell you that the president of Bre-X had an exit strategy all along. How are you going to get hold of the president of Bre-X who is now, I understand, living either in the Turks and Caicos Islands or somewhere, beyond the Canadian jurisdiction? To a certain extent, with that bill, unless you have an extradition agreement, really nothing will happen.

The other thing is that when seniors are defrauded, quite often they're ashamed to report it. To a certain extent, they're leery of the rest of the family because they feel they should have consulted the family. But we then find out that somebody does goes ahead and lay a complaint and the person is prosecuted.

You know, there's nothing in the legislation that says, if a person is found guilty of fraud, they're not only found guilty of the fraud perpetrated on the person who complained...but there should be compensation and restitution for all of the people who got defrauded by that particular person. I think to a certain extent the bill falls short.

We passed a resolution at our convention, which emphasizes the direction we seniors would like to go in. I'd like to read that resolution:

Whereas the federal government, in the January 27, 2009, budget set out the plan for regulatory reform of Canada's capital markets; and whereas the expert panel on securities regulation that reported in the Hawkin Report, published January 2, 2009, recommends reform of the multiple and provincial Canadian securities regulatory schemes to a single Canadian securities regulator; and whereas the Canadian capital markets need efficient, effective, and shareholder-friendly regulatory protection; and whereas a change in the Canadian securities regulatory schemes has the support of the majority of the provinces; and whereas a single securities regulator will enhance the detection and prosecution of serious capital market crimes, where the current fragmented system of provincial securities regulations has shown that it cannot prevent such crimes; and whereas the current financial crisis has provided the motivation and optimism that such a reform to a single Canadian securities regulator will work and be supported by most provinces; therefore it be resolved that the National Pensioners and Senior Citizens Federation lobby the federal government and opposition parties to establish a national securities regulator through legislation that enhances the right of investments.

The reason it's so important for seniors to have a regulatory framework is that, to us, prevention is really the answer to stopping crimes. If you have a strong regulatory system, where, for instance, we could separate people who either sell or advise in the security field into different parts, that would be a beginning. If we could license them properly and bond them properly, that would be another help. We think the answer to white-collar crime, especially as far as seniors are concerned, rests more on the side of regulation than really punishment, because, as I said, these crooks are pretty smart. They always have an exit strategy. We know it's awfully hard to recuperate these fraudulent gains.

Quite often they ship it out of the country, they transfer it to the rest of the family and so on, and it makes it very difficult. And for an average senior to have access to the judicial system, it's very hard. We're saying prevention is the answer to white-collar crime, especially when it comes to the question of seniors.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll move on to Mr. William Nichol, representing the Canadian Justice Review Board.

[William Nichol, Chief Executive Officer, Canadian Justice Review Board]

Thank you, Mr. Chairman, and members of the committee.

On behalf of the directors of the Canadian Justice Review Board, I wish to thank the committee members for providing the opportunity to appear here this afternoon. I've provided the committee clerk with a brief that highlights our concerns in more detail, and I understand you have received copies of it electronically.

The key point that I would like to emphasize is that Bill C-52 deals only with the sentencing aspect of an otherwise very lengthy process, and by its nature, it already provides many opportunities to avoid sentencing in the long run.

The brief contains a list of some of the many possible escape routes. I hope you will review and consider those in terms of the content of this legislation. My friend here has alluded to some of those escape routes.

Yesterday's Ottawa Citizen carried an opinion piece from Mr. James Morton, entitled “We need 21st-century law”. Mr. Morton is, among other things, an adjunct professor at Osgoode Hall. In my opinion, a key passage in his article touched on the matters being considered here today. Mr. Morton asks, “Is crime really best dealt with by prisons?” He answers the question by saying that in some cases—white-collar crime—probably yes, but in other cases, as with most drug-related crime, probably not. But here we're dealing with white-collar crime. Bill C-52 seeks to address white-collar crime and it does so in the general context of the criminal justice system's goal of preventing crime.

Fraud has a legal definition in the Criminal Code, but fraud can be very difficult to prove. If the goal is to prevent damage to society, and more specifically financial damage, then perhaps it's time to define in the Criminal Code some of the other undesirable white-collar activities—for example, creative accounting. In my opinion, this bill would be considerably improved if it did that.

If we were speaking of fraud alone, then the Canadian Justice Review Board submits that a two-year prison term is not an effective deterrent, especially given our current parole board policies. We ask that you, as legislators, consider a mandatory five-year sentence.

Ms. Hazel Magnussen, who is a colleague of mine operating in Victoria, British Columbia, who is also the secretary of the Canadian Justice Review Board, specializes in victims' rights issues. Over the past two years or more, she has been conferring with the Federal Ombudsman for Victims of Crime, Mr. Steve Sullivan, and also with our own board member Professor Ted DeCoste. As a result, they designed a curriculum that Ted DeCoste was able to introduce for law students at the University of Alberta that raises awareness of victims' rights.

Since Mr. Sullivan may also be appearing in front of this committee, I don't want to steal any of his thunder, but I would like to point out that the Canadian Justice Review Board agrees with sentiments he expressed in a November press release. He said:

I am pleased to see the federal government moving forward on important victims’ issues like financial crime and restitution...I am however concerned that the restitution piece of this new legislation applies only to victims of fraud. We need to ensure that we are supporting all victims who may have been devastated financially as a result of a crime.

If I may, I'd like to return quickly to the comments I made a few moments ago and reiterate that this legislation would be greatly improved if it brought within the ambit of the Criminal Code some of these other socially unacceptable practices often associated with what we might call the financial industry, and also legislated significant penalties for those behaviours, including restitution.

Fraud is not the only problem. I believe it's very upsetting, or depressing, for the general public to hear or read about major financial swindles and then learn that even those fraudsters who admit guilt receive what many consider to be laughable sentences, such as house arrest or early six-month parole.

What Bill C-52 should be doing is restoring public confidence in the justice system by giving society a legal framework that applies to the 21st century's financial world.

In closing, I would like to thank the committee again for the invitation to appear. I trust that you will give some consideration as to the recommendations we've made.

Thank you.

[The Chair, Conservative, Ed Fast]

Thank you.

Finally we'll go to Monsieur Roy.

[Simon Roy, Lawyer and Criminal Law Professor, University of Sherbrooke, Faculty of Law, with joint responsibility for the Financial Crimes Prevention Program, As an Individual]

First, I would also like to thank the committee for giving me the opportunity to address it. I would like to note that I am before you here today as a professor of criminal law and also as the co-chair of the master's program on fighting financial crime, a program offered in Montreal. So I hope that I am somewhat neutral on this subject.

Before making my presentation, I would like to reply to the question that Mr. Lessard just asked, whether two-year minimum sentences might be considered to be consecutive where there are several frauds in one case. I think the answer is no, because when the Criminal Code provides for consecutive sentences, it says so specifically. We might think of firearms offences. It adds that the sentence for those offences must be consecutive. The same is true in relation to criminal organization offences. That is not the case here, so I don't think it could be seen as consecutive, at least not as that being mandatory.

My observations will address the six main points in the bill. I would like to start with the two-year minimum sentence. I think that there are in fact still fraud cases where judges are giving sentences of less than two years. We need only consider the Coffin case, which went to the Quebec Court of Appeal not so long ago, relating to the sponsorship scandal. So adding a two-year minimum sentences does have an impact, and I don't think it will mean downward pressure. Traditionally, when a minimum sentence is added, a section, judges increase the average sentence, they don't decrease it. So I do not anticipate a downward effect.

That being said, there are still problems. Ms. Joncas spoke here about the case of an accomplice. Obviously this is a problem. An accomplice does not have the same degree of responsibility as the actual perpetrator. An exception might be made for them.

Another even more important factor is the amount of the fraud. A minimum sentence is to be added for frauds of $1 million and over. In my opinion, that minimum sentence would not apply in cases like Vincent Lacroix's. Why? Because in Vincent Lacroix's case, even though his total fraud was $115 million, his individual frauds were all under $1 million. In that situation, all the counts would probably be for fraud under $1 million, and there would be no two-year minimum sentence on any count. Ultimately, it will not change greatly, because his total sentence will be more than two years. But in my opinion, taking the amount of the fraud into consideration is a bad idea, because if there are multiple victims, the fraud may exceed $1 million in total, but be less than $1 million for each victim.

Conversely, the amount of the fraud does not include the benefit to the accused. For example, if I sell buildings worth $2 million and I tell my clients I am certified by the APCHQ when that is a lie, even if I receive no benefit, even if I intend for the buildings to actually be built, that's fraud, and the amount of the fraud is equal to the value of the building, $2 million, even if the benefit to me personally is limited to my profit in the building. So setting the figure for the amount of the fraud at $1 million causes problems, in my opinion.

Even more importantly, adding a minimum sentence and increasing the maximum sentences—in the case of section 380 we have both—should be done more comprehensively. In this case, fraud is the target, but nothing has been done about sexual assault with a knife, under section 272 of the Criminal Code, or incest, under section 155 of the Criminal Code. Might society see this approach as creating a hierarchy of crimes? Might they not think, in the public's eyes, that fraud over $1 million is more serious than sexual assault with a knife, or more serious than incest? The message sent by the bill is that this is in fact the case, because there is a two-year minimum sentence for fraud.

So playing with parts of the Criminal Code, adding minimum sentences in some places and not adding them in others, might send a bizarre message. This should be done comprehensively. There is a justification for minimum sentences. They can be good, but this should perhaps be done more comprehensively.

Regarding restitution for victims, this adds little in my opinion, because it is already provided in section 738. So the bill makes no change in that regard. It simply imposes certain duties on judges. But in itself, it will not facilitate restitution for victims. The problem is still the difficulty of establishing the actual losses in criminal law, which will mean that in any event the victims will have to go to the civil courts.

As well, obviously there is the accused's genuine insolvency, or apparent insolvency. In the case of genuine insolvency, the accused has no money, they can't pay. In the case of apparent insolvency, you have to know where they have put the money. If they have hidden it in a tax haven, the restitution order won't change anything.

The addition to the list of aggravating circumstances is essentially a codification of current law. Here again, no additional protection is being offered to the public against fraud. It is worthwhile to codify the current law, but it should be done as part of a broader reform of the Criminal Code. Some parts of the Code are up to date and have really been improved, while other parts are not. For example, section 181, about spreading false news, which the Supreme Court held to be unconstitutional in 1992 in the Keegstra decision, is still in the Criminal Code. When we talk about updating the Criminal Code and a section that the Supreme Court held to be unconstitutional in 1992 is still in the Code, I think there is some work to be done on reform.

Regarding the fourth measure, entitled "Judge required to record aggravating circumstances and to state reasons for refusal to order restitution", I don't understand why that is required in the case of fraud when it is not required in the case of other crimes. Why should a judge be specifically required to record the aggravating or mitigating circumstances in a fraud case, but not be required to do it in a sexual assault case, for example? I find it hard to understand why this measure is being called for.

Measure 5, which is probably the most interesting feature of the bill, in my opinion, is entitled "Prohibition on having authority over the affairs of another person". As was noted earlier, this covers a much broader area than probation. Probation is for a maximum of three years and may be applied only where there is a prison term of no more than two years.

Here, that kind of limit is not imposed. If I am not mistaken, the model you have in mind is much more along the lines of the prohibition for driving while impaired. We know that in the case of drunk driving, the judge may, for example, order a 10-year or 15-year driving prohibition, or even a lifetime prohibition, upon conviction. In my opinion, it is a very good idea to want a similar measure for fraud cases.

Obviously, however, this raises the question of supervising orders prohibiting handling the affairs of another person. In the case of driving, it is relatively easy. There are police on the roads who can do random checks of drivers' licences. In the case of another person's affairs, does this mean that the person will be under a probation officer for the rest of the order? We can assume it does, but the idea is worthwhile and it is probably the measure in the bill that offers the most protection for the public. When we talk about preventing fraud, protecting the public, it is really the only measure in the bill that is clearly dedicated to that idea.

And the sixth aspect of the bill deals with the "Victim statement on behalf of the community". In my opinion, that already happens and the bill adds little to the current situation, other than that it might provide better guidelines for how it works.

In conclusion, I would like to make a more general comment on the bill. I agree with what was said earlier: people who commit fraud can be deterred. Fraud is not an impulsive crime like some murders or some sexual assaults. It is not a crime associated with drug addiction, like selling or possessing narcotics. It is ordinarily a well thought-out and planned crime. In this situation, the fraud artist often does a cost-benefit analysis. They consider the benefits of committing a crime and the potential costs. At this state, deterrence can play an important role. That being said, deterrence is based on two factors: severity of sentence and certainty of sentence. I see that here there is a lot of work being done on severity of sentence, and that is laudable.

However, if a person has a one in 100 chance of getting a 14-year sentence, the cost-benefit balance is still tipped in their favour. That is why the work must focus not just on severity of sentence, but also on certainty of sentence. Are we catching more fraud artists? Are we catching them faster? That could have a real deterrent effect.

I will conclude by giving you the example of Mr. Madoff in the United States. Everyone believes that a 150-year sentence in Mr. Madoff's case has a deterrent effect. When I read about the Madoff case, I kind of said to myself that I was sorry I had never done what he did. Why? Because he led an extraordinary life, in the best hotels and the best houses on the planet; the travelled, and led a life we can hardly even imagine. Obviously, he got 150 years in prison, but he is 70 years old. If I compare the costs and benefits, in his case, I am not sure there is a deterrent factor.

Thank you.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll open it up for questions. Given our limited time, we'll do five minutes each, if that's all right with the committee.

We'll go with Ms. Jennings, five minutes.

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

Thank you. I appreciate your testimony and you patience with the committee's work. I have some questions for Mr. Kube and Mr. Roy. Unfortunately, Mr. Nichol, I did not hear your presentation, and that is why I will not be asking you any questions.

Bill C-52, in its present form, applies only to crimes of fraud, in general. As you said, that doesn't cover cases like Bre-X. A fraudulent prospectus was issued by a company. It also doesn't apply to insider trading, and so on.

Do you think the bill should be amended so that it applies to other fraudulent acts that are already regarded as criminal, to ensure equality, if I can use that expression?

Mr. Roy, you said it might be wise to create an exception for accomplices to fraud, given that the evidence often shows, beyond a reasonable doubt, obviously, that their role was minimal. In your opinion, how could we be sure, in terms of the drafting, that an accomplice who did play a relatively major role in the case was dealt with? Could there be aggravating factors that would determine whether the person should be subject to a mandatory minimum sentence?

You also talked about prohibitions on someone convicted of fraud handling other people's affairs. If the bill is amended to give a judge the power to impose such a prohibition, will other sections of the Criminal Code have to be amended to be sure that this makes sense? What I want to talk about here is what you said earlier, probation, monitoring a person who is subject to the prohibition.

Thank you.

Was that short enough?

[The Chair, Conservative, Ed Fast]

Two minutes left.

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

One minute each.

[Arthur Kube]

To answer your question, yes, I think it should apply to publicly traded securities because seniors deal with a whole range of things. And what we also have seen is that stock exchanges, in many instances, don't have the mechanisms to keep all their listed companies honest. So I think it should definitely apply.

[Simon Roy]

I think a minimum sentence should not be imposed on accomplices. That should be left to the judge's discretion. Otherwise, it gets too complicated.

On the other amendments, I think there would have to be an express reference to the sections on probation and the rules relating to that would have to apply. It works in impaired driving cases. It could be modeled on that; that wouldn't be so complicated. However, rather than aim it at certain particular cases, the wording "and such other conditions as the judge considers desirable" could be used. That might give the judge a little more latitude in formulating appropriate conditions.

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

Thank you.