Mr. Speaker, investor confidence is crucial to the life of Canada's capital markets and to our economy as a whole. American corporate scandals shook the credibility of global capital markets in 2001 and 2002. Multi-billion dollar accounting deceptions and other corporate scandals dominated international business media headlines during this period. Because of their far-reaching effect, these scandals have damaged investor confidence well beyond the American borders.
A survey conducted in 2002 revealed a dramatic drop in investor confidence following the collapse of WorldCom, with the majority of those surveyed believing that both the American and Canadian economies will continue to suffer as long as similar corporate misdeeds impact as they do on investor confidence.
In addition, a public survey in 2002 suggested that the majority of Canadians have lost confidence in the stock market and that Canadians show support for initiatives that are aimed at boosting financial transparency and stiffening penalties for those who transgress.
Currently, in partnership with provinces, regulators and law enforcement, the Government of Canada is working very hard to ensure the integrity of Canada's financial markets, although in the wake of recent American corporate scandals, the Government of Canada wants to make certain that this work will not only continue but is strengthened.
On September 30, 2002, the Speech from the Throne committed the Government of Canada to:
reviewing and where necessary changing its laws and strengthening enforcement to ensure that government standards for federally incorporated companies and other financial institutions remain of the highest order.
The Government of Canada has committed to constructing a response that is tailored to investor and law enforcement needs. One aspect of Canadian law that had to be addressed was criminal legislation dealing with serious capital markets fraud.
The government has come forward with legislative enforcement measures to deter the would-be perpetrators from committing serious capital markets fraud offences, to facilitate the gathering of evidence against those who have committed serious fraud offences, and to ensure that those who are convicted of such offences are punished appropriately.
I am pleased today to debate Bill C-46, an act to amend the Criminal Code, dealing with capital markets fraud and evidence gathering. This bill represents the government's response to the criminal law dimension to market misconduct, a very important step toward restoring investor confidence in our capital markets and in our economy generally. As members will soon hear, and which will become plainly obvious, those who engage in capital markets fraud will face a significantly increased risk of being caught, charged, convicted and punished.
The key to deterrence is greater certainty of detection and prosecution and the prospect of appropriately severe punishment. We can therefore also hope and expect that an enhanced criminal justice response to market fraud will serve to dissuade many who might otherwise contemplate such unlawful conduct.
I would like to turn to the IMETs part of the bill. First, to strengthen the national enforcement presence pertaining to serious capital markets fraud offences, budget 2003 included $30 million in funding to create up to nine integrated market enforcement teams, or what we refer to as IMETs. These are composed of RCMP investigators, forensic accountants, and federal prosecution service legal advisers and prosecutors in Toronto, Montreal, Vancouver and Calgary.
These teams would investigate serious Criminal Code capital market fraud offences that are of national significance and involve publicly traded companies whose actions have posed a genuine threat to investor confidence and economic stability in Canada. These teams will make use of existing Criminal Code provisions and those in new measures in Bill C-46 once the bill is passed into law.
Bill C-46 addresses four key areas in particular: first, new offences; second, sentencing measures; third, concurrent federal jurisdiction to prosecute certain offences; and fourth, enhanced evidence gathering tools.
Our review of the Criminal Code in the light of the American response to the crisis in investor confidence showed that we already have strong and effective laws to deal with capital markets fraud, including an effective fraud offence and offences of obstruction of justice and for filing a false prospectus and so on.
What we did find was that there appeared to be two gaps. Bill C-46 would effectively fill those gaps. In particular, Bill C-46 would create new offences for, first, prohibited insider trading and, second, employment related intimidation aimed at deterring corporate insiders from reporting illegal conduct and assisting the authorities.
When insiders of corporations use their special access to material inside information that is not available to other investors in order to benefit themselves, the investor confidence that is required in order to sustain the credibility of our vital capital markets can be seriously undermined. This activity can cause significant economic harm to individual investors, firms and the integrity of the Canadian economy as a whole.
Improper insider trading is currently prohibited under the provincial securities laws and under the Canada Business Corporations Act. However, the use of the criminal law is a necessary additional instrument for deterring this kind of corporate malfeasance because of its symbolic value and because of the more severe penalties available.
The addition of an offence to the Criminal Code to prohibit and punish improper insider trading as a criminal offence would provide an additional tool to deal with those cases that merited a more severe response and ultimately would help stabilize investor confidence.
Members may recall how insiders who disclosed illegal conduct played an important role in uncovering the recent American scandals. Our Criminal Code does contain certain offences that prohibit intimidation, which basically means trying to stop someone from doing anything they would otherwise have a right to do, such as talk to the police, by threatening them with violence or harm. The Criminal Code also prohibits attempts to obstruct the course of justice, which relates to interference with investigations and the prosecution of crime.
Threats and actions directed at a person's employment, done with the purpose of preventing them from cooperating with law enforcement or to punish them where they have done so, are not adequately covered by these existing offences.
Once again, the Government of Canada has responded. The addition of a targeted offence in Bill C-46 will help to deter this kind of inappropriate conduct on the part of employers and will consequently help encourage insiders to cooperate with law enforcement. This new offence will send a strong message that this form of intimidation will not be tolerated. I would like to point out to members that this offence will apply to efforts to stop employees from speaking to a law enforcement body about any kind of illegal conduct, not just securities fraud.
Encouraging those with knowledge of wrongdoing to cooperate with the authorities will facilitate the detection of capital markets fraud and other forms of corporate malfeasance, as well as aid in the enforcement of federal and provincial offences under securities regulatory laws and other laws governing corporate actions.
Now I would like to talk about the sentencing that the bill encompasses. In keeping with the Government of Canada's commitment to ensuring that those convicted of capital markets fraud and white collar crime in general are punished appropriately for their wrongful conduct and the harm they cause to Canadians, Bill C-46 contains significant sentencing proposals.
In addition to the 10 year maximum sentence for the proposed insider trading offence and the 5 year maximum sentence for the proposed employment related intimidation offence, Bill C-46 also would increase the maximum sentence for fraud from 10 years to 14 years and double the maximum sentence for fraudulent manipulation of the stock market transactions from 5 years to 10 years. It should be noted that a maximum prison term of 14 years is the highest term of imprisonment in the Criminal Code short of imprisonment for life.
These sentencing initiatives therefore raise the maximum sentences for capital markets fraud to a level that recognizes their serious nature and crippling effects that they can have on our economy.
In addition, as a direction to our courts, Bill C-46 includes a codification of aggravating and non-mitigating sentencing factors for fraud and other market related offences, ensuring that the sentences the courts hand down for these offences will reflect the seriousness of the economic and social damage that such offences can inflict on our society. The government believes these codified factors will also improve the sentencing of white collar crime in general.
Let me deal with the area of concurrent jurisdiction. The partnership is a key and breathes life into Bill C-46. As such we propose to use concurrent prosecutorial jurisdiction over fraud to supplement provincial jurisdiction and provincial resources in regard to the major cases of capital markets fraud that are the focus of integrated market enforcement team initiative.
Federal involvement would be limited to a narrow range of cases that threaten the national interest in the integrity of capital markets.
Let me be clear. We do not intend to replace or overtake provincial prosecutorial jurisdiction but rather to compliment it. To this end officials within the Department of Justice have been engaged in a dialogue with provincial prosecutorial authorities on the development of joint protocols that would protect provincial jurisdiction while allowing for supplementary application of federal prosecutorial resources where necessary and desirable.
To ensure proper coordination, the Government of Canada will work with the provinces to establish prosecution protocols that will ensure a coordinated and effective implementation of the concurrent jurisdiction. The concurrent jurisdiction proposal responds to an immediate national concern of investor confidence in Canadian financial markets. Through effective partnerships with our provincial colleagues, we can strengthen investor confidence and bring those who threaten it to justice. I look forward to continuing this relationship.
We also have to look at how we gather evidence in situations of this type. I would turn to the provisions of Bill C-46 that relate to this evidence gathering.
In the Speech from the Throne the government committed itself to creating better tools to enhance the evidence gathering capabilities of investigators. Bill C-46 does just that with Criminal Code amendments that create production orders. Production orders are similar to search warrants. Whereas a search warrant allows police to search a certain place for evidence, a production order compels a person to produce the relevant information to the police.
Although this investigative tool is new to the Criminal Code, it already exists in Canadian law, notably under the Competition Act and in limited circumstances under other statutes. Further, it could also be characterized as a codification of current practices. For example, today when a police officer enters a bank with a warrant to seize records, he does not usually shut down the bank to get those records. Nor will he seize the bank's computer system.
What generally happens is that the holder of the information sought in the warrant will generally produce that information to the police himself. The reason for this is twofold: first, it is more convenient for the bank, since its business operations are not being interrupted; and second, it is more cost effective and less time consuming for the police.
The production orders in Bill C-46 have been introduced in the context of the capital markets fraud, however, as crafted they will not only apply to capital market investigations but also to all Criminal Code offences where a regular search warrant could be obtained. Because the new production orders have this broad scope, we thought it was necessary to include the same judicial safeguards required by the Criminal Code search warrant provisions.
Law enforcement agencies and crown prosecutors have been asking for a new investigative tool for some time and with the proliferation of the Internet and the widespread adoption of new communications technologies, the timing is right for this form of investigative tool.
The production orders will solve a number of nagging issues for investigators including extraterritorial searches and timing issues. Under these new orders, persons who have possession or control of documents, data or information will have to produce that information whether it resides in Canada or abroad. Thus, as long as they have possession or control over the relevant information, they will be required to produce it no matter where it is located. This solves the problem that has in part been created by inexpensive overseas data warehousing.
Second, the new production orders will be time sensitive so that the third party served with the order will either have to produce the information within the time specified in the order or report back to the court within the specified time as to why he or she cannot comply. This solves the problem of the inherent nature of informal arrangements which is they are informal and they often lack specific mechanisms such as timing mechanisms.
In some cases police have had to wait for up to a year to obtain information from a third party holder of that information. This bill introduces two types of production orders to the Criminal Code to enhance the general evidence gathering capabilities of the investigators. The general production order will require a person other than the individual under investigation to produce documents, or data or to create a document based on the existing documents or data and produce it.
For example, a production order served on a bank could require the bank to compile existing but non-related information on a client and give it to the police. Before issuing the order, the judge or justice must be satisfied that there are reasonable grounds to believe an offence has been committed, that the specific documents or data will afford evidence relating to the commission of the offence and that the recipient of the order has possession or control of these documents or data. These are the same basic judicial safeguards as required by the existing Criminal Code search warrant provisions.
The second type of production order is the specific production order. It has been designed to be a first step investigative tool and is limited to specific types of information for which there is a lower expectation of privacy. A judge or justice will have to be satisfied that there are reasonable grounds to suspect that the information will assist in the investigation of an offence. This type of order, with a narrower scope, would only apply to financial institutions and other organizations specified in the legislation.
Therefore, the general details relating to bank accounts such as the name of an account holder, or type and status of an account could be obtained through a specific production order.
I am pleased to have spoken to this bill today. The bill reflects the government's criminal law response to serious securities fraud that poses real risk to investor confidence in the stability of our markets and economy.