Justice Committee on Nov. 25th, 2010

[The Chair, Conservative, Ed Fast]

I call the meeting to order. This is meeting number 38 of the Standing Committee on Justice and Human Rights. Today is Thursday, November 25, 2010.

We are welcoming a new temporary member to our committee, Meili Faille.

Welcome.

You have before you the agenda for today. We're beginning our review of Bill C-21, An Act to amend the Criminal Code (sentencing for fraud).

Just so you know, during the second hour of our meeting, or at the end of dealing with our witnesses, we will proceed to clause-by-clause consideration of the bill, as agreed at our last meeting. I trust that you've been able to submit all of your amendments to the clerk. Right now, we have five amendments that we will be dealing with.

To go back to Bill C-21, we have with us two witnesses: Joseph Groia, a lawyer, and Lincoln Caylor, who is with Bennett Jones.

Just as a reminder to those of you are here in the room and have BlackBerrys or other kinds of devices, please turn them to vibrate or turn them off.

Mr. Caylor, would you like to start? You have 10 minutes.

[Lincoln Caylor, Lawyer, Bennett Jones, As an Individual]

Thank you very much.

Thank you for inviting me here today.

I'm a commercial litigation lawyer, so I'm a civil lawyer, not a criminal defence lawyer. I practise, as the chair said, at Bennett Jones, a firm in Toronto. The focus of my practice is commercial fraud litigation, so I act for victims of fraud--typically, corporate victims of fraud. In the last number of years, in addition to that I have acted in a number of cases in what I classify as consumer fraud, investment-type fraud, and telemarketing-type fraud.

So while most of my practice is for corporations, I've also had quite a bit of experience with individuals who have been defrauded in what I call a consumer or investment type of fraud. In those cases, the key is to attempt to get the money back for the victims, so I can speak a bit about that. In my experience with respect to these consumer frauds and the corporate frauds, I've also dealt with law enforcement and the crowns for a number of years and with how they deal with these types of consumer frauds.

With respect to the bill you're considering, I agree that Canada needs to change its focus in how it deals with white-collar crime. The bill is a step in the right direction. However, it is not something that will completely deal with white-collar crime or comprehensively deal with it, in my view. My concern is that, on its own, it deals with only one small aspect of white-collar crime--the sentencing part.

My concern is that once we get to sentencing currently in Canada, while there has been and is a perception that sentences are light, with the well-prosecuted, well-investigated cases, the sentences have been certainly more than two years. You'll see a number of examples in the materials that have been circulated. My concern goes to the first two steps before you get to sentencing, which are law enforcement's investigation of white-collar crime in Canada, and then, once a crime is investigated and gets to the crown's office, the crown's ability to prosecute that type of case.

Those are my general concerns. With respect to specifics, I would raise two concerns. One has to do with the $1-million threshold. This means that when you get to the crown part of the criminal process, you're asking the crown's office to deal with quantifying a fraud, which crowns are typically not well equipped to do.

If you're going to add a layer of complexity at the crown's office, you need to back that up with more resources. The concern with respect to adding the $1-million threshold they have to establish is that if you're making the prosecution of white-collar crime more complex, fewer cases will get prosecuted, which would be the opposite of what I understand the intent of the bill to be. If you're prosecuting them, they will take longer to prosecute, and the delay inherent in the more complex frauds may result in more cases being withdrawn because of the constitutional infringement of the right to a speedy trial.

The second concern I'll address is with respect to the mandatory consideration of restitution. In reading the Hansard notes and the presentations made to you by victims of fraud, the concern I have is that people will assume that the criminal sentencing process will get them their money back. It does not, and it will not under this bill.

The draft bill you're considering provides a form for victims to fill out, and then says that the sentencing judge “shall consider” restitution. The problem there is that it does not change the law with respect to when a sentencing judge can grant restitution. I'm not suggesting that it should be changed, but the problem is that the criminal process and the criminal courts are not an adequate way for victims to get restitution or to get their money back. So to the extent that the bill raises expectations in that area, I think that is a concern.

Those are my general themes. I am prepared to talk about any of the other areas that you'd like to question me about, but that is the extent of my presentation.

Thank you, Mr. Chairman.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll move to Mr. Groia for 10 minutes.

[Joseph Groia, Lawyer, Groia & Company, As an Individual]

Thank you.

These are interesting, challenging, and even dangerous times, I would say, in the Canadian capital markets. Never in my 30 years of being involved in the enforcement business of securities offences have I seen as much uncertainty as we're facing today.

I'd like to address just two aspects of Bill C-21. The first is the mandatory sentencing provisions for fraud. The second is restitution provisions.

About the mandatory sentencing provisions, I have three observations. First, they are not necessary. Second, they won't do what you hope they will do. Third, they are counterproductive. I say that having a background as a former head of enforcement at the Ontario Securities Commission and also now as a lawyer who represents both victims of fraud and those sometimes accused of fraud.

Second, I'd like to say a word about the restitution provisions. I believe they are a step in the right direction, but, like Mr. Caylor, I don't think they go far enough, and I would ask this committee to consider perhaps going further than is currently proposed in this bill.

Mandatory sentencing provisions for fraud are not necessary, because the cases you have heard about have all resulted in jail sentences far in excess of a two-year minimum. Mr. Jones was convicted in February of 2010 and received a sentence of 11 years. Vincent Lacroix of Norbourg was convicted in 2009 and received, effectively, a sentence of 18 years. In perhaps one of the most well-known and publicized prosecutions in the last decade, Mr. Drabinsky and Mr. Gottlieb, of Cineplex, received sentences of seven years and six years.

I can tell you that my experience is that judges and prosecutors take white-collar fraud very seriously. Although we call this the Standing up for Victims of White Collar Crime Act, I can tell you that every day in my practice prosecutors are doing exactly that, the best they can and with the resources they have.

Second, a mandatory jail sentence will not solve the problem. If we want to improve the protection of investors in Canada, we need to look at provisions and approaches to this problem that are much more comprehensive than those found in Bill C-21.

I'm encouraged by the efforts of Parliament to move forward with a national securities commission, not because I care about the filing of prospectuses or the raising of capital, but because I think we're long overdue for the introduction of a national enforcement agency that is concerned with the successful detection and prosecution of white-collar crime across the country. I hope that a national securities commission will do what IMET has been unable to do, which is to bring to bear specialized resources that will protect Canadian investors.

Thirdly, mandatory minimum sentences are counterproductive. Chief Justice McRuer said 58 years ago that a mandatory sentence “tends to corrupt the administration of justice by creating a will to circumvent it”. The danger you will need to consider as a committee is that the application of mandatory sentences will do exactly the opposite of what you hope to accomplish.

In the United States of America, which is perhaps the genesis of mandatory sentences and approaches to sentencing guidelines, they are moving away, under the Obama administration, from mandatory sentences and moving towards a Canadian style of system, where we attempt to have justice fit the crime, the victim, and the criminal. I would say that a mandatory approach to this problem is not the solution, and indeed, I worry that if you go forward on that basis, you will make it worse rather than better.

Secondly, the restitutionary powers that are being proposed in many respects are simply an adjunct to what is already required under the Criminal Code. When we look at restitution, there is no more important aspect, as Lincoln said, than ensuring that victims of crime are compensated as a result of their losses. We are talking about the hard-earned savings of families and of Canadians who can't afford to have their college fund or retirement fund stolen by white-collar criminals.

The difficulty, of course, is that by the time law enforcement gets there, we often see that the money is long gone. It resides in secrecy havens or resides elsewhere where it will never be found. When we talk about restitution, what we need to be talking about is a much broader approach to looking at how we compensate injured investors. Saying to the criminal that as part of her sentence she is going to have to pay the money back sounds good, but is completely ineffective.

What I think we have to look at, if we're interested in approaching this problem on a more sympathetic and a more effective basis, is how we get self-regulatory agencies and securities commissions, and other deep pockets that may have been involved in authorizing, permitting, or acquiescing in the activities of the criminals, to contribute towards a solution. I would encourage you, when you look at this bill, to ask what really we want to accomplish, and whether or not we get there under Bill C-21.

Finally, for those who might say that this is an approach to the problem that is soft on crime, my answer would be no, it's an approach to the problem that is smart about policing crime.

Thank you very much. I'd be happy to entertain questions.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll start with Mr. Murphy.

You have seven minutes.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Thank you, Mr. Chair.

Thank you, witnesses.

I'm not going to comment or ask questions on the mandatory minimums. In what feels like a sort of graduate course for me, we've been discussing mandatory minimums over the past five years. If I discuss them once more, my head is going to explode.

I do want to get at the issue of restitution in sections 738, 739, and 740 of the Criminal Code. You have précised very correctly what this act does. I'm not sure that anybody objects to anything in the act. I guess my argument most of the time with the government is, “You're not really getting at what you are telling Canadians you're getting at”. I think that's the substance of your testimony.

So I'm going to do something a bit unusual for us in questioning here. I'm going to take extremely little time in putting it to you to expand on your suggested I think improvements to restitution, which in my view is what is really at the nub of this.

Partly what you said is that the provinces have to step up, that the policing agencies, the regulatory agencies, have to step up. I consider it part of the job of the Attorney General for the Government of Canada to work hand in glove with that and encourage it. The other part, however, is that most of what is written in the Criminal Code is about the situation after conviction. There's very little in the way of pre-emptive forfeiture or the seizing of assets; I know as a lawyer that it's not done easily. What you have both said on behalf of victims is that the money is gone by the time you get a conviction.

So what specific improvements can be made to the latter part of the Criminal Code? And what can we do as a justice committee to encourage the government to help the provincial end of this to keep the money, get the money, and redistribute the money?

[Lincoln Caylor]

I'm not sure how you'd work it into the Criminal Code, other than with respect to the national regulator that has been proposed. To the extent that it doesn't go ahead, the local securities regulators have the power to seize assets. In civil litigation, victims have the power to seize assets, although they have to use people like Mr. Groia and me to do it, so it can be expensive.

In my view, the criminal process is not going to be a process that can take those steps efficiently. I think it's overburdened and under-resourced right now. If you add on the types of things we're talking about that the regulators can do, which is receiverships and freezing money, I don't think it's going to work through the criminal process.

I think you have to encourage the regulatory bodies that have those powers currently to start using them more aggressively, and especially, if you end up with a national regulator, resource that regulator to take those aggressive pre-emptive steps, as I think you called them, to secure the money in advance. Because as we know, the sentencing comes much later, and by then, as Mr. Groia said, the money is long gone.

My initial view is that I don't think the crown's office and the Criminal Code is the place to do it, but the regulatory bodies are.

[Joseph Groia]

There is, however, an interesting debate going on in the United States arising out of the Madoff disaster. What you see in these kinds of cases, particularly in the Ponzi scheme, is that so much of the distribution of the money that has been stolen from investors is done by the criminal himself. Often, at the very end of a Ponzi scheme, when the person realizes they're about to be arrested, they start to make large payments to various friends, relatives, and other people they want the money to go to. We saw that with Mr. Madoff, who, near the end, paid out very large sums of money to some of his favourite clients.

I've advocated for a number of years that what the law should do is to say to the victims of a Ponzi scheme that they are going to share in this loss together. What that would mean is that, if you were lucky enough to be paid back not only your principal but the enormous rate of return you'd been promised three months before the music stopped and there were no more chairs to sit down on, then we're going to allow you to keep your principal, but we're going to make you pay back for a period, I would say, of five years, if it went that long. Everyone who participated in it will get their money back, if they were paid out, but they will have to repay into the fund that would be established by the receiver any profit they made.

In a situation like the Earl Jones case in Montreal, you would significantly increase the amount of money that would be available for distribution to the injured group by requiring that the persons who were paid out shortly before the end of the fiasco were not entitled to essentially keep their gains.

It's interesting that in the United States a number of investors have sued for their profits. Knowing that it was a Ponzi scheme, they've started a class action wanting to be paid their profits even after they knew Mr. Madoff was stealing money from other investors.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Is this Ponzi clawback in place in New York, or all states, or where?

[Joseph Groia]

It's being implemented in the United States in connection with Madoff and is being done by the trustee in bankruptcy who's trying to administer the estate. He has commenced a number of lawsuits to try to recover moneys, but there have been voluntary repayments by a number of funds that benefited from Mr. Madoff.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Are you suggesting that it's a particular procedure in a particular incident and is not in any way a law or regulation but ought to be? Is that what you're saying?

[Joseph Groia]

I'm not an expert on American bankruptcy law, but my understanding is that, as in Canadian bankruptcy law, a trustee in bankruptcy can go back and essentially set aside transactions for a period of three or five years.

What I'd ask you to consider is whether we could establish, as part of the restitution process, some way by which we could essentially reallocate those losses in a more equitable way, so that some people don't end up getting all their money back with an enormous rate of return and other people get nothing. I don't think that's fair and I don't think it helps our capital markets.

[Brian Murphy, Liberal, Moncton—Riverview—Dieppe, NB]

Great.

Those are all the questions I have.

[The Chair, Conservative, Ed Fast]

Thank you.

We'll move on to Monsieur Ménard.

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

Thank you.

It is really very gratifying to hear from people who are experts in their field. You are certainly giving us a a lot of insight.

From what you are basically telling us, I think I gather that criminal law has a philosophy, as well as objectives and methods that are totally different from those in civil law. Criminal law is not actually a good system for providing victims of fraud with a fair share of anything that may remain from a fraudster's activities.

Is that an adequate summary of your thoughts?

[Lincoln Caylor]

With respect to the distribution of the proceeds of the fraud that you do get and who gets them and how, you are correct that it's my view that the criminal procedure and process are ill-equipped to do it. The process Mr. Groia was talking about is quite often done in a receivership or through a trustee, which is separate from the criminal process. My concern, which I expressed in my opening statement, is that the victims are misunderstanding the bill, such that they think they're going to get their money back through the restitutionary process set out in the bill.

Mr. Groia is correct. You're not really changing the current restitutionary schedule in the Criminal Code. You're beefing it up a bit, but you're not making it run along the lines that were explained, whereby people will have different varying claims to profit, to their principal, and to who gets what ahead of whom in the priority of what is found. So if you find a certain amount of money, who gets to share in it is not dealt with through the criminal process currently, and I don't think it ought to be, because I don't think the criminal process can deal with it.

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

No. I actually practised criminal law myself and, really, in this very complex system, I have a hard time seeing criminal court judges starting to decide who has to get what from anything that remains.

But this bill will apply not only to huge frauds with a lot of victims but also to frauds with only one, two or three victims.

In your practice, I suppose that you have come across similar cases, whether as a crown prosecutor or in one of the other positions you have held, am I right?

[Lincoln Caylor]

If I understand the question correctly, sometimes the criminal process does work quite well when there is a small number of victims, and the rest—

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

No. Actually, it was a lead-up question to another one. I just want to make sure that it is correct to say that you have seen similar cases, whether as a crown prosecutor or in another capacity. I will get to the question right away.

When there are victims, judges very often use the time between the end of the trial and the sentencing to see whether the accused is actually doing anything to right the wrong he did to the victims.

[Lincoln Caylor]

So you mean the impact with respect to repaying victims and its impact on the criminal sentencing?

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

Yes, definitely. That is usual, isn't it?

[Joseph Groia]

Indeed, as a white-collar defence lawyer, you will almost inevitably have a discussion with your client about their ability to repay, their willingness to repay, and the consequences if they choose not to repay.

You're absolutely correct. It is very common for judges, if they have convicted a person, to telegraph, sometimes obliquely and sometimes not obliquely, the importance of that happening. That happens even without the threat of restitution. It happens as one of the factors already included in the code for sentencing.

To put it simply, I say to clients that if they are able to repay all or substantially all of the money they have been found to have stolen, their chances of being sentenced to jail will be substantially reduced as a result of that payment.

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

So you have never actually seen an individual who has been sentenced to prison reimburse the money that was fraudulently obtained, correct?

[Joseph Groia]

One of the sad realities of jail is that is difficult to make money there to repay. In that sense, one of the difficulties with jail sentences is that they actually work against the restitutionary interests you have.

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

I do not have much time, and I have even less because of the delays with the interpretation. There's something that we should be compensated for from time to time.

That said, for fraud, as for all the offences in the Criminal Code, there are accessories of different kinds, some of whom play a very minor role. Take, for example, a secretary or a receptionist working in what seems to be a perfectly legal company, like Vincent Lacroix's. At some point, she begins to have doubts about the legality of what Mr. Lacroix is doing, but she stays with the company anyway and therefore becomes complicit because she understands that people are being defrauded.

So we could see people convicted for major frauds though they played a minor role. Clearly, the judge would take that into consideration and might not impose a prison sentence, although there would still be a penalty. Am I correct?