Madam Speaker, I am pleased to speak today on Bill C-46. The Bloc Quebecois is in favour of the bill in principle, but reserves its decision on the division at third reading stage until we see how the government reacts to our amendments.
I would remind members that, as early as the fall of 2002, the Bloc Quebecois urged the federal government to tighten the provisions of the Criminal Code so that the authorities would have better tools at their disposal to fight corporate fraud. The Bloc is therefore delighted that the government has given in to our pressures and has taken our opinions into account and retained some of our suggestions.
We do, however, find it unfortunate that not all of our suggestions were accepted. For this reason, we advise you that, barring major amendments at third reading, we could decide to vote against it, even if we do agree with the principle at this second reading stage.
These major reservations, however, relate to an aspect of the bill that we shall be trying to amend at the committee stage. We find it difficult to understand that this bill could provide that a federal attorney also has jurisdiction to prosecute Criminal Code offences concerning capital market fraud.
This is especially worrisome to us since the federal government has publicly announced its intention of establishing a Canadian securities regulator. Having a Canadian Securities Commission was one of the obsessions of the former finance minister, soon to be the prime minister of Canada. And this would be done despite the fact that jurisdiction over this area is clearly indicated, despite the fact that the securities commissions in each province have made their choice clear. The former finance minister, the member for LaSalle—Émard, seemed intent on getting his way on this.
We are concerned about what Bill C-46 will turn out like if it is not amended in order to ensure clear respect of Quebec's jurisdiction. For us, regulation of securities clearly falls under the jurisdiction of the Government of Quebec. We therefore disagree with the federal government's intentions in this regard and want to be sure that no encroachments of jurisdiction will result.
But, I want to talk in general terms about this legislation. This enactment amends the Criminal Code by creating a new offence of prohibited insider trading and creating a new offence to prohibit threatening or retaliating against employees for disclosing unlawful conduct. The enactment increases the maximum penalties and codifies aggravating and non-mitigating sentencing factors for fraud and certain related offences. In other words, the allowable sentences are being increased so as to deter people from committing this kind of offence.
Furthermore, in keeping with the Criminal Code, the enactment provides for concurrent jurisdiction for the Attorney General of Canada to prosecute those offences, taking into consideration the reservations I mentioned earlier.
In addition, the enactment also creates a new procedural mechanism by which persons will be required to produce documents, data or information in specific circumstances, to make it easier to build a solid case, without getting lost in a legal labyrinth when information is quickly needed to serve as evidence, and to ensure that any necessary changes can be made as soon as possible.
Clearly, this bill follows on the heels of recent corporate scandals in the United States. We only need mention Enron. These scandals have made us aware of how fragile our financial system is and how much we rely on it.
During the 1930s, before the crash, many of our parents and grandparents grew up believing that the stock market was undoubtedly a bit corrupt. After the crash, this sector had to rebuild a more honest, proper and appropriate image or reality. But recent scandals have tarnished the reputation of the financial sector, which desperately needs an unassailable, solid image. Investments take a beating when we can no longer trust the institutions charged with ensuring the transparency of financial transactions. The result is fewer transactions and disinterest on the part of investors. We must remedy such situations.
Although at first we thought that only large investors were affected by a stock market crisis, that is not the case. As I was saying, the biggest players on the stock markets are the pension funds. As a result, if a pension fund suffers large losses, it is the small investors who can lose their life savings and see their retirement projects go up in smoke.
That is why it was time for the federal government to intervene in this matter. The Bloc Quebecois has been speaking out on this subject for over a year. It is a question of ensuring that, at the end of the day, the people who have invested in the pension funds and who do not necessarily have day to day control over what happens to them, the people who trust the companies who administer the funds, will not have the surprise of finding themselves, at retirement, with assets that are not what they might have expected. This situation has been begging for a solution.
For example, in 1998, the Canadian trusteed pension funds held assets of more than $500 billion. Of that $500 billion held in pension fund assets, about $115 billion was invested in Canadian stocks and some $57 billion in foreign stocks. Four million Quebec and Canadian workers contribute to these funds. Only the financial assets of the chartered banks exceed the capital held by the pension funds.
That illustrates the importance of this market, the importance of assuring these small investors, those who invest trustingly, through their pension funds, that their money is well invested.
In addition, analysts have recently observed that trusteed pension funds tend to favour investment in stocks rather than in fixed interest securities. It is all the more important to ensure the validity and security of the system.
In light of the previously mentioned figures, it is clear that a financial crisis would have a direct impact on the retirement incomes of millions of households and it is precisely those households that we have to protect.
Fortunately, to date, Canadian markets have been relatively spared from professional misconduct, except for the cases involving CINAR and Nortel.
In the CINAR case, the Bloc Quebecois condemned it in this House and revealed that there indeed had been major fraud within this company. Today, the company has started up again with new directors, but we do not know the full story, because the federal government signed an agreement through Revenue Canada to put out the fire.
It was clear in this situation that interests close to the Liberal government were called into question, as were some people who were friends of the current regime. A way was found to prevent them from getting the sentences they deserve and that should have been handed down in these cases.
Nonetheless, the CINAR and Nortel crises, and everything that happened in the United States, should encourage us to ensure that our legislation is well drafted and stronger, in order to discourage cheats who might want to abuse the system.
However, the Bloc Quebecois feels that despite the fact that our securities regulation systems are, in the opinion of many experts, much more comprehensive than what existed in the United States before the financial crisis, it is nonetheless important to send a clear message to corporate directors that financial misconduct constitutes a serious crime that is not acceptable in our society.
Let us learn from what happened in the United States. The messages were not clear enough. People had a field day and thought they could do all kinds of things like artificially inflating companies, and conducting all kinds of financial transactions that eluded pension fund administrators.
By the time a scandal breaks, it is too late for people who invested in these companies in good faith, thinking these were rather sound investments. We are not talking about investments in high risk areas. That is not how it was presented to the people who invested in good faith.
In the United States, a really fraudulent system was set up. Here, in Quebec and Canada, this did not happen because we were better protected to begin with; still, there are lessons to be learned, to ensure that in the future the system will be much more efficective than it is right now.
That is why, in the fall of 2002, the Bloc Quebecois called for major changes to be made to the Canadian Criminal Code in order to provide the appropriate authorities with better tools to fight crimes of a financial nature.
What are these changes the Bloc Quebecois is calling for? In a nutshell, since the fall of last year, we have proposed adding a section to the Criminal Code that would make insider trading a criminal offence in order to send a clear message to company directors that the use of confidential information obtained in the performance of their duties for the purpose of making profits or avoiding losses would not be tolerated.
The idea is to avoid situations where, having heard that a transaction is about to take place, a person lines her own pockets during the time when no one else, or almost no one else, is aware of the transaction.
Perhaps we thought for a long time that it was enough to rely on the good faith of people. We are realizing that we need measures, actions and stiff penalties to prevent insider trading. Such offences are one of the most tragic ways that investors' confidence in the system can be shaken.
These offenders figure, “Others in the company, such as executive officers, stand to profit, while I, by the time news of the transaction reaches me, will not have the chance to buy and sell shares the usual way, since the game will be almost over and what could be gained will already have been gained because others have beat me to it, using information before they should have to pocket piles of money”. This way, they make profits or avoid losses at the expense of other investors who do not have access to the same information. This sums up my point.
We wanted this provision to be added after section 382 of the Criminal Code. It would have created an offence of insider trading, which would have carried a maximum sentence of ten years' imprisonment so that people would be well aware of the consequences they could face before they decided to engage in such a behaviour. Then, should they be found guilty of such an offence, they would have to pay dearly.
We see that the government accepted our suggestion and included a new offence of insider trading in the bill. We are pleased about that. The Bloc Quebecois also proposed that a new offence be created for securities fraud. This offence, which would be patterned on the measures adopted in the United States and which would also carry a ten-year prison term, would prohibit fraud when selling or buying securities.
The Bloc also proposed two amendments to section 397 of the Criminal Code. This section clearly stipulates that fraud is committed by someone who:
(a) destroys, mutilates, alters, falsifies or makes a false entry in, or
(b) omits a material particular from, or alters a material particular in,
a book, paper, writing, valuable security or document.
These provisions could have applied to falsified financial statements. It was noticed when gathering evidence, particularly in the American cases, that documents had disappeared and that the tools needed to punish those who had made these documents disappear were not available since no punishment was provided for in the Criminal Code.
Furthermore, subsection 2 makes it a specific offence if documents are falsified with the intent to defraud creditors. This makes it even more relevant. In both cases, the sentence is five years. We, in the Bloc Quebecois, believe that this kind of sentence is not harsh enough to have a deterrent effect. Consequently, we propose that the maximum sentence be increased to ten years so that the message is clearer. People must understand that this type of behaviour will not be tolerated and that those who are caught will have to pay a very high price.
Finally, we suggest that a third paragraph be added to section 397. This paragraph would deal with falsification of documents with intent to defraud stockholders. We think that stockholders, whose investments are not secured, unlike most creditors, constitute a category that is more vulnerable because they have no way of recovering their investment. Consequently, we cannot see why there is a specific offence of fraud that creditors might be the victims of, and there is no similar offence concerning stockholders. We are trying to correct this situation and we hope that the bill will correct it.
Thus, the bill contains provisions on insider trading. As I said, the Bloc is pleased to see them included in the bill. It also prohibits threatening or retaliating against employees for disclosing unlawful conduct or for assisting law enforcement officers to investigate cases of capital market fraud. These employees also need to be protected against intimidation. Of course, when a scandal occurs, when we learn suddenly that someone, particularly if it is at the top level, has committed fraud, we can be sure that some people in the company will keep a low profile. If we want them to have a lawful conduct, we must provide these employees with the leeway and the protection they need to be able to act.
These employees often have a key role to play in disclosing scandals in companies, but they may be intimidated or threatened, including through measures against their job or their livelihood. Someone may suggest that, if a certain document is found, perhaps they will lose their job and will be made to pay the price.
People must be protected from this; otherwise the threat can be such that some may cave in. Even if it cannot be justified, some do it. Moreover, at the present time we do not have the necessary tools. They must be given adequate protection.
Creation of a new offence of threat or reprisal relating to employment would encourage people with inside information to co-operate with law enforcement officials and would punish those threatening or making use of reprisals. This offence would be punishable with up to five years' imprisonment. Obviously, we are in favour of this provision too.
Some of the provisions regarding insider trading, threats or reprisals were requested by the Bloc Quebecois and we hope they will be made into law.
To strengthen penalties in cases of fraud on financial markets, and to make sure that the punishment fits the crime, the proposed reforms would increase maximum sentences for existing fraud offences, and would establish aggravating circumstances, which the courts should take into consideration in sentencing.
Maximum sentences would rise from 10 to 14 years for the present fraud offences under the Criminal Code, and for those affecting the public market. Maximum prison sentences for market manipulation offences would increase from 5 to 10 years.
The proposed reforms would also include a list of specific aggravating circumstances allowing the courts to impose stiffer sentences for the most serious offences. Factors such as the extent of the economic impact or any negative impact on investor confidence or market stability could lead to increased sentences.
The message is very clear, if you work in that sector and if you act illegally in such a way that it has a major impact on investors' confidence, you deserve to be penalized accordingly.
On this side, we want to send a clear message to people who work in that sector, namely that there is no room for fraud because too many people are involved. Also, we are talking about the money of too many people—who often are not the direct investors—who can lose their savings because of this type of behaviour.
Moreover, a person's reputation and standing in the community or work environment, which have always been considered mitigating factors that can reduce penalties, could not apply in such a case. It would not be possible to say that the person in question was generously involved in various volunteer activities or that sort of thing. If a crime of this nature is committed, such factors cannot be used to reduce the penalty.
Finally this is a sector in which these factors are often used to minimize the impact of a crime when the wrongdoers are found out, because they are often people with important positions or philanthropic activities. But the philanthropic aspect does not, in our opinion, justify reduced penalties.
And now, the improvements: this bill provides for improved evidence-gathering procedures. Some sections have the effect of compelling professionals not to respect their duty of confidentiality. Under certain circumstances, this bill can compel a professional to produce documents and even prepare documents that may concern confidential matters, which could certainly come under someone's privacy.
Therefore, even though these sections provide that orders to produce may be subject to certain conditions in order to protect privileged communications such as lawyer-client privilege, the fact remains that some confidential information could be divulged, under certain circumstances.
Thus we might wonder if the fact of compelling a professional to communicate confidential information could undermine the confidential relationship between clients and professionals. I think that this is one idea we should explore in committee in order to ensure that the planned measures maintain the necessary balance in this regard, while still ensuring that the bill will have a dissuasive effect.
We also ought to mention section 487.015 of this bill, which is an attempt to respond to this concern by enabling anyone named in an order under the two preceding sections to apply to a judge for an exemption from the requirement to produce any document, data or information referred to in the order.
If a person says he does not want to provide the information and has good reason not to do so, he may go before the judge and obtain an exemption. So this is a kind of safety net for the protection of the information, but it does not automatically lead to the protection of such information; the judge is called upon to assess the appropriateness of the request.
It remains to be seen what criteria judges will use for denying the disclosure of confidential information. It will therefore be important at committee stage for witnesses to tell us what these criteria might be, and for us to study the proposals and suggestions. We will need to see whether it is appropriate for them to be incorporated in the act, or as regulations, or whether we need to take some other form of action to ensure that there is a clear understanding of the leeway available for obtaining authorization not to transmit this personal information.
Clause 487.013 allows the banks to disclose confidential information such as the account number, status and type, and the date on which it was opened or closed. As well, they can provide the account holder’s date of birth, currentaddress and any previous addresses.
We must point out immediately that this information is an integral part of a person's private life. When they are requested, the individual's privacy is of necessity being encroached upon. It is incumbent upon us to question just how necessary this breach of privacy is to the objective of this bill.
Quebec and Canada have workable laws to protect privacy. These could still be improved, but it is important that the principle be respected. We would be very pleased if the clause by clause study of the bill, and the contributions of those appearing before the committee could cast some more light on this, so that we can shape the bill accordingly.
Finally, I will address the charges by federal prosecutors. As I said at the start, this is where we in the Bloc Quebecois have a problem, and this is why. The regulation of financial markets is an area that comes under the jurisdiction of Quebec and the provinces, as does the administration of justice.
Under this bill, the Attorney General of Canada would have concurrent jurisdiction with the provinces and territories to prosecute certain criminal fraud cases, including the proposed new offence of illegal insider trading. Federal involvement in this area would supposedly be limited to a narrow range of cases that threaten the national interest in the integrity of capital markets.
These limits need to be very precisely defined. There may be a way to vote in favour of this bill, if we receive enough guarantees on this point and on the whole issue of federal prosecutors.
According to information released by the federal government, the Government of Canada will work with the provinces to ensure proper and efficient concurrent jurisdiction by establishing prosecution protocols.
But between statements of good faith by the federal government and reality, there is often a grey area. I understand that measures to protect provincial jurisdictions should be adequate, clear and precise, and meet the approval of the Government of Quebec and the other provinces.
For many years, the federal government, through the former finance minister, the member for LaSalle—Émard, wanted to implement a Canada-wide securities commission, and thereby intervene directly in provincial jurisdiction. We have to make sure that the federal government does not achieve through the back door what it has so far failed to do through the front door.
We now see what the hon. member for LaSalle—Émard thinks about transferring money to the municipalities. In a very roundabout fashion, he is proposing direct involvement in the municipalities in full view of the provinces. He is blackmailing the municipalities, saying that if they want money, they must tell their province to sign the agreement. This amounts to political bargaining, which is unacceptable and does not respect areas of jurisdiction.
So, if this can be done with the sales tax, it may be possible to do it indirectly through this bill. We must ensure that this is not the direction we are heading in.
Consequently, we cannot support these new provisions. They confirm, in our minds, the federal government's new desire to get involved in the securities sector, which is the responsibility of Quebec and the provinces, as I just demonstrated.
Overall, however, this bill respects a number of the Bloc Quebecois' proposals. It will provide our system, in Quebec and Canada, with the tighter controls it needs, at a time when people have lost confidence, to some extent, in the markets and the securities sector.
So, we must send a clear signal. This bill contains some interesting measures to reinforce a system that, fortunately, in Quebec, was already better than the Canadian system.
The only thing left to do is ensure that Quebec's jurisdiction is respected. If so, the Bloc Quebecois will vote in favour of this bill at second reading. Once there have been consultations and once the committee has heard from witnesses, if we are assured that Quebec's constitutional jurisdiction will be respected, we will vote in favour of the bill at third reading. We will thus have helped create legislation to build an even better securities sector, and we will have also made a satisfactory contribution to the Quebec and Canadian economies.