Justice Committee on Dec. 7th, 2009

[The Chair, Conservative, Ed Fast]

I call the meeting to order. This is meeting 52 of the Standing Committee on Justice and Human Rights. Today is Monday, December 7, 2009.

You have before you the agenda for today. We're considering Bill C-52, An Act to amend the Criminal Code (sentencing for fraud).

We've divided today's meeting into two panels. First, we have a panel that includes witnesses from the RCMP. This is their third attempt to appear before us on this bill. We apologize for the inconvenience that we've put them through.

I know that you people have done your best to be here on time, but owing to a number of unforeseen circumstances we weren't able to accommodate you. We're eager to hear what you have to say today, so thank you for attending.

During the second hour of review, we'll be hearing additional witnesses on Bill C-52.

If there's any time left at the end, we can move to consider any committee business that members may want to raise. We have a budget for travel that we need to consider.

I wanted to note that this meeting is being televised and to remind you to turn off your BlackBerrys and take any phone calls outside the room.

Thank you.

Who's going to start for the RCMP?

[Commissioner Stephen White, Acting Commissioner, Director General, Financial Crime, Royal Canadian Mounted Police]

I will start.

Good afternoon, Mr. Chairman, members of the committee. Thank you for inviting the RCMP to participate in today's proceedings. I am pleased to have this opportunity to speak about the RCMP's efforts to address financial crime in Canada.

White-collar crime is local as well as global, and it comes in many different forms. We have mass marketing and payment card frauds, identity theft, and identity fraud. There are capital markets frauds, including Ponzi schemes and insider trading, and money laundering. Whether it is local or global, white-collar crime has devastating effects on individuals and communities. When businesses and individuals are victims of fraud, we see an increase in personal and corporate bankruptcies. With the loss of investments, homes, and life savings, the social damage can be severe and can undermine the trust people have in their society.

Many financial crimes are complex and difficult to uncover. They are time-consuming and labour-intensive to investigate and to prosecute. For example, a couple of recent investigations consumed between 50,000 and 70,000 person-hours, involved the gathering of millions of documents, and incurred combined forensic accounting costs of several million dollars.

The reality is that many of these investigations are lengthy, complex, and costly. Although the external environment in which law enforcement operates continues to pose challenges, as a national organization the RCMP has the experience and expertise to carry out these long and complex investigations. It is important to highlight that enforcement of the fraud-related provisions in the Criminal Code of Canada, including enforcement related to capital market fraud, is a mandate that the RCMP shares with every police service in Canada.

Our ability to carry out this work is clearly strengthened by our partnerships with regulatory and other law enforcement agencies within Canada and internationally. Our efforts to combat white collar crime reside in the RCMP's Financial Crime Directorate's three programs: the Commercial Crime Program, the Integrated Proceeds of Crime and Money Laundering Programs and the Integrated Market Enforcement Program.

I would now like to speak about how each is working to combat financial crime.

The mission of the RCMP's commercial crime program is to detect and prevent threats to the Canadian economy and to help ensure the integrity of Canadian institutions. Commercial crime investigators deal primarily with fraud, offences against the Government of Canada, the corruption of public officials, the insolvency process, and bank note counterfeiting.

The RCMP has 26 commercial crime units strategically located across the country. These units are staffed with experienced investigators and employees who are supported by subject matter experts in different fields, such as forensic accounting and criminal law.

In terms of financial crime trends, the RCMP is seeing an increase in the volume and complexity of mass marketing frauds and identity thefts. Payment card and counterfeit payment card frauds have also increased substantially.

In recent years the Canadian Anti-Fraud Call Centre has documented an increase in the overall number of reported incidents of mass marketing fraud in almost all provinces. Mass marketing fraud also remains a significant cross-border crime issue between Canada and the United States.

To combat it, the RCMP has established several specialized teams. Project Emptor in Vancouver and Project COLT in Montreal are teams that involve U.S. and Canadian law enforcement partners, while our investigators in Toronto take part in the Toronto strategic partnership, which is made up of various law enforcement agencies in the greater Toronto area.

In addition, according to PricewaterhouseCoopers' 2009 global economic crime survey that was released last week, 56% of Canadian companies say they have been a victim of economic crime in the past 12 months, which is 4% higher than in 2007. Of those companies, 24% indicated their direct fraud losses were greater than $500,000. Approximately 59% indicated that the perpetrator was from outside of the company.

The cost to an individual whose identity has been stolen can be enormous. Financial loss and the investment of hundreds of hours spent trying to re-establish identity and good credit all take their toll. In 2008 the Canadian Anti-Fraud Call Centre received identity fraud reports from more than 11,000 Canadian victims, who collectively lost more than $9.6 million. While this figure indicates an increase of more than 48% over the losses reported during the previous year, it's estimated that the complaints received by the call centre represent just a small portion of the problem.

A study by McMaster University estimated that in 2008, 1.7 million Canadian victims of identity theft spent 20 million hours and $150 million clearing their names. The McMaster study also indicated that only 19% of identity frauds are ever reported to the police or the credit agencies. With the vast majority--roughly 81% of all identity frauds--going unreported, the actual losses are probably staggering.

In consultation with key stakeholders and other law enforcement agencies, the RCMP is developing an identity fraud strategy to address criminal intelligence and analysis; prevention through education and awareness; and disruption, enforcement, and prosecution of identity fraud cases.

We are also heading up the creation of an international identity fraud working group, the objective of which is to obtain an overview of other countries' identity fraud strategies, discuss related joint priorities, and develop an international strategy.

In 2004 Canada had the highest level of currency counterfeiting among G10 countries. In 2005 the RCMP, in cooperation with the Bank of Canada, developed a national counterfeit enforcement strategy to combat counterfeiting by providing national focus in three key areas: enforcement, prosecution, and prevention. By using new and existing resources, the RCMP established integrated counterfeit enforcement teams in Toronto, Montreal, and Vancouver.

I am pleased to report that this effort has resulted in a dramatic decrease in the level of counterfeit activity in Canada. The National Anti-Counterfeiting Bureau statistics indicate that since 2004, currency counterfeiting has dropped approximately 80%, from more than 500,000 notes in 2004 to just 107,000 notes in 2008. Even lower numbers are forecast for 2009.

When you eliminate profit, you eliminate the incentive to commit profit-driven crimes. Therefore, the main objective of the integrated proceeds of crime program is to identify, restrain, and forfeit all illicit and unreported wealth accumulated through criminal activities. Across the country the RCMP operates in partnership with other law enforcement and government agencies in 13 integrated proceeds of crime units. Since 2003 these units have obtained the forfeiture of more than $64 million in cash and property. They have an additional $142 million seized and waiting for disposition.

The mandate of the RCMP's Money Laundering Program is to implement specific measures to detect and deter money laundering and to facilitate the investigation of these types of activities. The RCMP Money Laundering Program participates in the exchange of information between initiative partners, such as FINTRAC and the Canada Border Services Agency. It also provides an investigative assessment of money laundering intelligence and monitors national and international money laundering trends.

In 2003 the integrated market enforcement teams, or IMETs, were established in Toronto, Montreal, Vancouver, and Calgary. The teams are made up of RCMP investigators, Public Prosecution Service of Canada legal advisers, forensic accountants, and, at some locations, representatives of security regulators and local law enforcement agencies. The IMETs investigate serious Criminal Code market fraud offences that threaten investor confidence or economic stability in Canada.

In 2007, Mr. Nick Le Pan, former federal Superintendent of Financial Institutions, was appointed by government as the senior expert adviser to the RCMP to help develop and guide the implementation of recommendations aimed at improving the IMETs. His report was tabled in October 2007, and key to the recommendations made throughout his report is the challenge of equipping an IMET with the tools and resources it needs to succeed in the environment it operates in.

Since his report was tabled, the RCMP has implemented Mr. Le Pan's recommendations. Today the IMET program is achieving results and working effectively. Over the last year the IMETs have laid criminal charges in a number of major investigations, and more investigations are proceeding.

As I indicated in my opening remarks, white-collar crime is pervasive and increasingly complex, but we do have the experience, expertise, and partnerships to get results. As Canada's national police service, the RCMP will continue to play a critical role in combatting economic crime and helping to protect Canada's economic integrity.

Thank you. We look forward to answering your questions.

[The Chair, Conservative, Ed Fast]

Thank you, Mr. White.

I was remiss in not mentioning the two individuals you have with you, Stephen Foster and Superintendent Dean Buzza.

Welcome here.

We'll move on to Madam Jennings, for seven minutes.

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

Thank you very much, Mr. Chair.

Thank you for your presentation.

I listened very carefully to the presentation and read earlier the written copy. I don't seem to see anywhere in your presentation where you make a statement--positive, negative, neutral--about Bill C-52.

What is the RCMP's view of Bill C-52?

[Commr Stephen White]

In summary, it's a bill that we support. We see no major concerns with the legislation.

I believe mandatory sentencing has the potential to be a useful deterrent against any criminal activity. Potential criminals will know with certainty that there will be a consistent minimum consequence for carrying out fraudulent activity that exceeds $1 million.

So in that regard, yes, it is a piece of legislation that we're supportive of.

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

Thank you.

Next, in your presentation on page 6, when you talked about the IMETs, the integrated market enforcement teams, you said, in the very last sentence of that section, the following:

The IMETs investigate serious Criminal Code capital market fraud offences that threaten investor confidence or economic stability in Canada.

What kind of capital market fraud offences are you speaking of?

[Superintendent Dean Buzza, Director, Integrated Market Enforcement Team, Royal Canadian Mounted Police]

The frauds we see most often are in the news and are today known as Ponzi schemes. We see something that we refer to as “pump and dump”, a scheme in which people will flood the market with shares, wait for the price to go up, and then withdraw their moneys. We see false prospectuses being issued. We see miscommunication of the financial situation of a company.

These are the mainstays.

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

Thank you very much, because I'm assuming that you've read Bill C-52 and that you would have therefore noticed that the amendment being brought for a minimum mandatory sentence does not apply to certain related offences such as fraud affecting the market, fraudulent manipulation of stock exchange transactions, insider trading, or a false prospectus.

Now, given what you've just talked about, would you not consider that as offences involving more than $1 million, these might be those to which a mandatory minimum sentence would and should apply?

[Commr Stephen White]

Yes. I think to have those types of offences included would be consistent, in line with it being, if it's over $1 million, a type of major fraudulent activity.

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

Thank you.

My next question has to do with the next paragraph on page 6 of your report, where you talk about the IMETs reformulation. You give a brief description of the fact that Mr. Nick Le Pan was appointed senior expert adviser to the RCMP to help you “develop and guide” the implementation of recommendations aimed at improving the IMETs.

Apparently, one of the challenges he identified through his recommendations is that of equipping the IMETs with the tools and resources they need to succeed in the environment they operate in. What are those tools and resources you need that you do not have sufficient of at this time?

I'm assuming that Bill C-52 will apply if in fact we succeed in convincing the government to bring in the amendment so that the mandatory minimum applies to these capital market frauds, which it does not do at this time. There are other resources and tools you need. What are they?

[Commr Stephen White]

On the big components that were recommended by Mr. Le Pan in his report, a lot of them had to do with adding new resources to help us expedite some of our investigations.

As I mentioned earlier, these investigations are long and very paper-intensive. A number of the recommendations dealt with adding additional resources for things like transcribing documents and for overall major case management for these big cases.

As well, they dealt with additional resources for our technological crime units. A lot of the work we do in the area of IMETs and financial crime has a technical component to it. There was a lot of reorganizing of the whole HR structure and the IMETs in order to help us retain expertise within the program. There's a multitude of new resources. I say resources, but I would look at them as tools at the same time.

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

From your description, these new resources clearly call for an additional budget. Or are you going to tell this committee--you may very well do so--that the current budget IMETs have to operate with is more than sufficient to, again, cover the cost of these new resources?

If it isn't, have you seen an increase in your budget? What is the budget right now? What kind of increase would you need or have you received in order to be able to implement these recommendations about new resources?

[Commr Stephen White]

Yes. There was additional funding provided at the time for the implementation of these recommendations.

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

And it was how much?

[Commr Stephen White]

It was an additional $10 million.

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

Okay. And that covers you for what period of time? Is it recurrent?

[Commr Stephen White]

My understanding is that it will be ongoing funding. Yes.

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

Okay. Thank you.

I have no further questions at this time.

Thank you very much for your answers. They were very clear and very succinct. I appreciate that immensely.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll move on to Monsieur Ménard for seven minutes.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

In your brief, which I read, you talk about cooperation with forensic accountants. Could you tell us what context they work in? Do they work within squads like the ones you already have in Canada or do you, rather, ask them for advice on occasion?

[Commr Stephen White]

Most of the forensic accountants are permanent staff, embedded within the actual teams.

There's definitely one full-time forensic accountant in each of the IMETs in Vancouver, Calgary, Montreal, and Toronto. On an as-needed basis if we require additional forensic accountants, we will go out and obtain that service.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Do those people have the same university education as the CA?

[Commr Stephen White]

Yes. In my understanding, they are all either general accountants or chartered accountants, but they are accountants.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Are they civilian members of the RCMP?

[Commr Stephen White]

No, most of them are contracted through the forensic accounting group at Public Works and Government Services Canada.