Mr. Speaker, it is a pleasure to represent the Progressive Conservative Party on third reading of Bill C-46, which is a response to the recent spate of corporate scandals that have plagued the United States and weakened investor confidence in capital markets around the world. Scandals associated with companies, such as Enron, WorldCom and ImClone, have precipitated calls to strengthen corporate governance standards and to better enforce laws governing capital market activities.
Governments have responded to the fall-out from these events by moving to improved corporate governance, enhanced auditor independence, increased corporate accountability, facilitate and ensure holder oversight of corporate activities, and increased penalties for wrongdoing.
The United States was first off the mark with the Sarbanes-Oxley act of 2002. Signing the law on July 30, 2002, Sarbanes-Oxley introduced far-reaching measures designed to heighten corporate disclosure and accountability, improve auditor oversight and independence, create new offences, and increase penalties for corporate fraud.
The question I raise is why it has taken this government so long to put in place legislation. The Americans have been at least a year ahead of us.
Let me read the key amendment to the Criminal Code in Bill C-46, clause 2, subsection 380. This is the focus of the legislation. Part 2 states:
Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, with intent to defraud, affects the public market price of stocks, shares, merchandise or anything that is offered for sale to the public is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years.
Fourteen years is a long time; only if it is implemented. Again we have heard in the debate today that the government of the day certainly make all kinds of legislation but when it comes to enforcing penalties that is a totally different issue. Until the track record on the enforcement side changes, obviously the confidence in this government and its legislation will certainly be questionable.
For most people who work hard for a living and who contribute to a pension on a weekly or monthly basis, their pension contribution is very important. Most Canadians are not in control of their pension funds. They rely on agencies or brokerage houses to ensure that there is some security for the money that has been put into pension plans.
As a former teacher, I have invested 26 years of hard labour into my pension plan, and I, like most Canadians, would like some sense of security that our pension money will not be stolen.
Most Canadians work hard, believe in pension savings and somewhere down the road, whether at 50 or 60 years old when they retire, they want to know there will something there for them. They do not want to worry that someone took their pension money and lost it, and that there was no recourse for the people who took the money.
That is why we should have had this legislation in place, certainly after the Enron scandals in the U.S. Canadians expect that. It is not good enough for the government to say that it is a provincial mandate and authority.
The federal government gets involved in all kinds of issues, health care being one example. As members know, the government only contributes 15¢ on the dollar, yet it wants to set standards for the country. Canadians agree that there needs to be national standards but that the government should be paying its share.
In Canada, the federal and provincial governments, as well as security regulators, share responsibility for enforcing laws pertaining to corporate and securities activities. Consequently, both levels of government have been moving to confront the governance and regulatory issues raised by these recent corporate scandals and their concomitant impact on investor confidence.
Ontario, for example, has enacted new legislation and the Ontario Securities Commission has issued draft rules relating to the role and the composition of audit committees, certification of corporate financial statements by chief executive officers and chief financial officers, and requirements for the financial statements of publicly traded companies are to be audited by a firm in good standing with the Canadian Public Accountability Board.
There are many changes in the bill and hopefully they will have an impact in terms of developing a regime of greater security for the money that is put into the investment business. Canadians expect that.
The bill would amend the definition of attorney general in the Criminal Code to give the Attorney General of Canada concurrent jurisdiction with provincial attorneys general to prosecute certain capital market fraud cases, including those currently outlined in section 380 of the code, fraud; section 382, market manipulation; and section 400, distributing false prospectuses, statements or accounts; as well as the proposed new offences of illegal insider trading.
The federal government should work to coordinate activities with the provinces in relation to such cases by establishing prosecution protocols. Furthermore, federal involvement in this area is expected to be limited to cases that threaten the national interest and the integrity of capital markets. As I said, it should be and hopefully it will be so that we have a greater sense of cooperation between the federal government and the provincial governments.
As we have heard many times in the House, there is too much conflict in this country between the federal government and provincial governments. Certainly, in the interest of Canadians, which is why we are here and which is the intent of this place, the federal government should work closely with the provincial governments. At the same time it should realize that it should not intrude into provincial jurisdictions without sitting down and working through the process with a sense of cooperation.
Bill C-46 would increase the maximum prison sentences for the existing offences of fraud and fraud affecting the public market under section 380 of the Criminal Code from 10 to 14 years. Again, as has been alluded to in the House, it is not the numbers on the paper, it is about the enforcement and the application, so that we do not bargain away, in a judicial process, the penalties that are in the legislation.
As was said today by a lawyer who attended the hearings on Bill C-46, “it is not what is on paper, it is what it is in reality”. Unless we put on paper mandatory requirements, mandatory sentencing, and certainly in cases of jail time, then it will not apply. We can send these folks away for 50 years but that does not mean it will happen.
Maximum terms of imprisonment for market manipulation offences would increase from five to ten years. Market manipulation involves practices that create a market for securities that have little or no bearing on their actual value, which is obviously fraud. It includes activities such as washed sales, where there is a purchase and sale but no change in the beneficial ownership of a security; and match orders, where a purchase order or a sale order for a security are substantially the same size, at substantially the same time and the same price, and are entered by either the same person or two different persons.
Also in the act are new sections establishing four aggravating circumstances that a court can consider when imposing a sentence for market fraud offences. These are as follows: the amount involved in the fraud exceeded $1 million or the offence has adversely affected or had the potential to adversely affect the stability of the Canadian economy or financial system or any financial market in Canada, or investor confidence in such a market. Another new add-on is that large numbers of victims were involved and that the perpetrator took advantage of his or her elevated status or reputation in the community in committing the offence. The presence of these facts will enable courts to impose tougher penalties.
There are also new offences under the heading of insider trading. Bill C-46 creates new criminal offences with respect to prohibited insider trading and tipping information. That is really the key function of the bill. Improper insider trading is already prohibited under the Canada Business Corporations Act and under provincial securities laws.
The new Criminal Code offences are intended to deal with the more egregious cases that merit stiff criminal penalties. Insider trading is commonly referred to in respect of the purchase or sale of securities when using material non-public information that could affect the price of such securities. It also covers tipping such information, that is, providing inside information to a third party for that party's benefit or the benefit of the insider.
The bill defines inside information as information about a company or security that “has not been generally disclosed” and “could reasonably be expected to significantly affect the market price or value of a security”. Persons subject to prosecution include those who: possess inside information because they are shareholders of the company issuing the security, referred to as the issuer; have a business or professional relationship with the issuer; obtain the information in the course of a proposed merger, takeover or reorganization of the issuer; obtain the information in the course of their employment duties or in the office of the issuer or an entity referred to above; or receive the information from a person who obtained it by virtue of the positions or relationships mentioned above. The offence will carry a maximum term of imprisonment of 10 years.
Under the heading of tipping, which means to knowingly convey inside information to another person when one knows there is a risk that the person may use the information to buy or sell a security, or to convey that information to another person who will trade in a security, we see that it can be treated as an indictable or summary conviction offence. Under the indictable offence, tipping carries a maximum prison term of five years.
I do not have a lot of time, so I will move on. There are changes in the whistleblowing area as well as in evidence gathering production orders. The government is playing catch-up with United States lawmakers, who have already passed legislation not just to strengthen criminal sanctions but also to reform the way corporations are governed. Boards of directors, auditors and auditor committees all have key roles to play in protecting the interests of shareholders. Indeed, the scandals that rocked the capital market in 2001-02 are widely seen to be the result of poor corporate governance, lax auditing and accounting standards and oversight, and incentives provided by executive compensation arrangements.
In spite of this, the government's background information on Bill C-46 does not once mention the role of good corporate governance legislation. Shortly after the government tabled Bill C-46, the Senate banking committee completed a year long study of the circumstances that resulted in the American corporate scandals. The committee was particularly interested in whether these circumstances might occur in Canada with similar results and, if so, how they might be avoided. The committee called for tougher sanctions, whistleblowing protection for those who report irregularities and increased resources to investigate wrongdoing.
It also recommended legislative measures: to require that a majority of board members be independent; to require the development of a code of ethics to be followed by all board members; to require that audit committee members be independent and financially literate; to limit the non-audit services that auditors can provide to their audit clients; to require an organization's chief executive officer and chief financial officer to certify that the annual financial statements fairly represent the organization's results and financial condition; and last, to prohibit compensation committee members from being a member of management and require them to have expertise in compensation and human resources.
I will close by saying that the Progressive Conservative Party will support the bill.