Mr. Speaker, Bill C-46 on capital markets fraud and evidence gathering has now been returned to us by the Standing Committee on Justice and Human Rights without amendment. I am happy to rise to speak to it on this third reading.
Members are well aware of the crisis in investor confidence in capital markets around the world that resulted from the recent major corporate scandals in the United States. Responding to this crisis has engaged governments at all levels and the stakeholders in those markets in Canada as well as in many other countries.
Bill C-46 addresses one aspect of that response: legislative measures to combat the criminal law dimension of market misconduct. It addresses the federal government's and Parliament's responsibility to ensure that police and prosecution authorities have effective legislative tools and the capacity to use those tools to deter and punish fraud and other criminal behaviour that threatens the integrity of our capital markets and investor confidence in those markets.
Bill C-46 is thus part of a package of enforcement measures that includes the creation of the RCMP led integrated market enforcement teams. As members have heard, these IMET units will focus the combined skills of investigators, lawyers, forensic accounting services and other disciplines on major cases of capital markets fraud. They would be located in our four major financial centres, Toronto, Vancouver, Montreal and Calgary and would add new, dedicated resources to the enforcement of fraud cases that threaten the national interest in the integrity of our capital markets.
Budget 2003 committed the funding required for this federal enforcement effort and also made commitments as to the accompanying elements of the legislative arm of this effort. Bill C-46 fulfilled that second commitment. Those elements comprised four separate areas: first, offences; second, sentencing; third, concurrent federal jurisdiction to prosecute; and fourth, enhanced evidence gathering tools.
Bill C-46 targets capital markets fraud with new offences and sentencing enhancements while at the same time enhancing generally the sentencing of fraud, which is a rapidly expanding and ever more damaging criminal problem, as well as facilitating evidence gathering in regard to all criminal offences.
In the wake of the scandals in the United States and the wide-ranging legislative measures taken in response to them at the federal level in the U.S., known as the Sarbanes-Oxley Act, the federal government conducted a thorough examination of the Criminal Code and consulted with federal and provincial enforcement authorities to see if our offences needed to be strengthened to deal with the same problem.
We found that the responsible authorities agreed that we already had strong and effective criminal laws to deal with capital markets fraud. Both police and prosecution authorities emphasized in particular that there was no need to add more specialized market fraud offences to the Criminal Code and that, rather, this indeed could be counterproductive.
The basic fraud offence in the code, section 380, is the offence most often used in capital markets fraud cases. It is comprehensive, well understood and thoroughly tested and interpreted by the courts. The existing market specific offences are in fact relatively rarely used, although the Criminal Code does have a panoply of such offences, including manipulation of stock market transactions, section 382, and filing a false prospectus, section 400. It also has strong offences covering obstruction of justice and other relevant criminal activity that could threaten the integrity of the capital markets.
Two specific gaps were identified. Bill C-46 addresses both of those gaps. The first of these involves improper insider trading. This misuse of personal advantage and responsibility strikes at the core of investor confidence.
It is already covered by all provincial securities legislation and by the Canada Business Corporations Act, but stakeholders strongly advise that a Criminal Code offence will add an additional and powerful weapon against this damaging activity that threatens the integrity of our capital markets. A criminal offence for serious cases of prohibited insider trading adds the social stigma of the criminal law and more severe penalties for this violation of public trust.
The offence that Bill C-46 will add to the Criminal Code in the proposed new section 382.1 is based on the model found most commonly in provincial securities legislation. It is fashioned to capture only that improper trading conduct that is currently prohibited by the legislation, but with the added mental element required for a Criminal Code offence and a criminal law level of penalty.
The other proposed new offence would seek to encourage employees to report unlawful conduct within their companies and cooperate with law enforcement by prohibiting employment related threats or retaliation against them for so doing.
U.S. and Canadian experience has shown that employees can play an important role in disclosing this conduct to the authorities. It was found that threats and actions aimed at such persons' employment are not adequately covered in the existing offences of intimidation or obstruction of justice. This targeted offence will close this gap. It will address the protection of what is often called whistleblowing in those circumstances where such a deterrent measure is appropriate for a Criminal Code offence, where the threatening or retaliatory action in employment situations is akin to intimidation or obstruction of justice. It will have a broad application to any appropriate case but will be particularly helpful to the enforcement of capital markets fraud cases.
The second component of Bill C-46 is the sentencing enhancements directed at fraud, and in particular, capital markets fraud. The bill will raise the maximum prison term for the primary fraud offence, that is, section 380, from 10 to 14 years. Fraud overall, as noted, is becoming an increasingly more serious criminal problem.
This will address both capital markets fraud and such pernicious fraud cases as major telemarketing frauds. It will also raise the maximum sentence for the market specific offence of fraudulent manipulation of stock exchange transactions from 5 to 10 years. I would note that a maximum term of imprisonment of 14 years, which the bill would apply to the offence most often used in capital markets fraud cases, section 380, is, next to the maximum term of life imprisonment, the highest maximum sentence in our criminal law. In addition, Bill C-46 will add certain aggravating and non-mitigating sentencing factors that will point judges to those cases of fraud that need greater denunciation and deterrence, whether they are cases of capital markets fraud or other major frauds that do great economic and social damage to our society.
Third, Bill C-46 will also give federal authorities a role in prosecuting these fraud cases in addition to the existing provincial prosecutorial role and responsibility in these cases.
This addition to the concurrent jurisdiction of the Attorney General of Canada to prosecute certain cases under the Criminal Code is an initiative that has been much misunderstood. It is not, for a start, a constitutional issue concerning the division of powers.
The authority of Parliament to confer such jurisdiction on federal prosecution authorities under the Criminal Code has been unequivocally confirmed by the Supreme Court of Canada, and Parliament has chosen to do so recently in certain criminal organization offences and all terrorism offences.
As in those cases, the new federal prosecutorial role in regard to capital markets fraud cases will respond to an immediate issue of great national concern.
Nevertheless, the definition of attorney general in section 2 of the Criminal Code reflects the traditional role of the provincial prosecuting authorities in dealing with the prosecution of most crime in their provinces. The federal government respects this traditional role.
The new federal prosecutorial role, created by Bill C-46 would, as noted, focus only on major cases of capital markets fraud that threaten the national interest and integrity of our crucial capital markets.
Moreover, this role would be both complementary and supplementary to the existing provincial prosecutorial role in these cases. The federal government would seek only to add its resources and expertise to help to ensure that these cases could be effectively prosecuted in all provinces.
All government in Canada currently face challenges to prosecutorial capacity. This initiative would help to address those challenges in regard to the national problem of capital markets fraud. To achieve this end, federal authorities have already had productive discussions with provincial prosecution authorities on the core principles of proposed prosecution protocols that would coordinate this partnership effort.
These proposed core principles would affirm the existing and primary role of the provinces in this area and would add federal resources only in a supplementary and a backstop role. These protocols would ensure that there is a coordinated and cooperative approach to the vigorous and effective prosecution of major cases of capital markets fraud.
The fourth and last component of Bill C-46 would facilitate evidence gathering. Federal and provincial law enforcement authorities have long argued for the need of additional production order powers to complement the existing investigative powers under the Criminal Code. Existing search warrant powers under the code allow police officers to search places for evidence, but this judicially authorized production order would add a power to require persons to produce existing relevant information, or to prepare and produce documents based on the existence of relevant information.
This requirement would be directed only at those third parties who are themselves not under investigation and would require the production to the police of relevant information, within a specified period of time, which is under their possession or control whether it is stored inside or outside of Canada.
Bill C-46 would create two levels of production order. First, the general production order would be available in the same circumstances in which a search warrant is now available, with all of the same constitutional and procedural safeguards. Second, the more narrowly targeted specific production order would provide a first step investigative tool. It would be placed on an appropriately lower criminal standard where there would be reasonable grounds to suspect that the information would assist in the investigation of an offence, but it would be limited to specific types of threshold information about which there is a relatively low expectation of privacy.
This would extend only to such general financial information concerning account holders as the name, address, account number, the date an account was opened and its active status. It would not, however, extend to such personal information as the transactions or amounts in those accounts.
While these production order powers would be available in regard to the enforcement of all criminal offences, they would be particularly helpful in the timely and effective gathering of financial information that is the core element in the investigation of capital markets fraud cases.
In conclusion, Bill C-46 has been welcomed and has received the solid overall endorsement of stakeholders in law enforcement, representatives of provincial security regulatory agencies, the securities industry, and from members from all sides of this House.
Together with the commitment of additional enforcement resources through the integrated market enforcement teams, this criminal law enforcement initiative would help to deter and punish fraudulent activity that threatens the integrity of the capital markets that are vital to Canadian economic life. It would help to ensure that those who engage in this socially and economically damaging criminal activity are detected, charged, convicted and appropriately punished.
I would urge all members of the House to support the passage of Bill C-46.
