Mr. Speaker, on behalf of my colleagues in the Bloc Quebecois, I am pleased to take part in this debate at the second reading stage of Bill C-46, sponsored by the Minister of Justice, which deals with capital markets fraud and evidence-gathering.
Members will remember that this bill was introduced just before summer recess last spring, after months of waiting and pressure from all sides. The gigantic financial scandals that we have seen over the last 24 months, such as Enron, Arthur Anderson and WorldCom just to name a few, have shown how urgent it is for the government to legislate in that area in order to protect not only investors but also the whole economic system.
But the government was dismally slow to react, being too busy, no doubt, managing the leadership crisis within the Liberal Party of Canada. The bill was finally introduced, very late unfortunately, but we can nevertheless be pleased that we do have it before us now. I will take this opportunity to say that the Bloc Quebecois will support speedy passage of this bill so that we finally have legislation that will effectively regulate financial transactions and ensure the accountability of business auditors. To this end, the Bloc Quebecois will propose certain amendments to specify both the scope and the spirit of the bill. I will be more specific about these amendments later in my speech.
I would remind members that, in 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. In fact, several elements of the bill stem from our party's contribution to the debate, but we find it unfortunate that some of our suggestions were not accepted.
We still have major concerns about one particular aspect of the bill. 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 publicly announced, or at least suggested, its intention of establishing a Canadian securities regulator.
As you know, and this is an aspect that is particularly important to the Bloc Quebecois, securities regulation clearly falls under the jurisdiction of the governments of Quebec and the provinces. We must therefore ensure that the various jurisdictions are respected, thereby countering the federal government's designs in this respect.
This will be discussed further at committee stage, and I believe we ought to focus on the principle of the bill for the time being. So, the bill amends the Criminal Code and creates two new offences, namely insider trading and threats and retaliation against employees who may have revealed corporate misdeeds. At the same time, the maximum sentence for some offences, including fraud, is increased, and certain rules relating to aggravating and mitigating factors will be codified to facilitate interpretation at the time of sentencing. In addition, the bill gives the Attorney General of Canada jurisdiction to prosecute these offences.
The enactment also provides for new mechanisms whereby certain persons will be compelled to produce documents, data or information that will often be specific. As I said in my introduction, there is a very specific context requiring legislation in the financial sector today.
Corporate scandals in the United States have made us aware of how fragile our financial system is and how much were collectively rely it. Some might think that only major investors can be affected by a financial debacle and that the small savers who make up the most part of the population are therefore relatively safe. The fact is that this is totally untrue.
In fact, the biggest and most powerful financial players are represented by the whole familiar panoply of pension funds, and this inevitably means that part of these funds consists of our fellow citizens' savings. Thus, if a pension fund were to suffer substantial losses, it would be the small investors who would pay the heaviest price, even to the point of losing their life savings and seeing their retirement plans go up in smoke.
In this regard, and without getting too entangled in numbers, in order to understand the factors at stake here, it is important to note that in Canada in 1998, Canadian trusteed pension funds held assets of more than $500 billion. Statistics Canada, in a 1998 report entitled “Trusteed pension funds, financial statistics,” estimated that of the $500 billion held in pension fund assets, about $115 billion was invested in Canadian stocks and some $57 billion in foreign stocks.
These sums, which appear astronomical to ordinary mortals but are commonplace in the financial world, represent the contributions of four million Quebec and Canadian workers to these funds. As an illustration, only the financial assets of the chartered banks exceed the capital held by the pension funds.
There is another important fact that illustrates the need to regulate the integrity of administrators. It has to do with the propensity of trusteed pension funds to favour investment in stocks rather than in fixed interest securities. As such, and in light of the previously mentioned figures, it is clear that a financial crisis as serious as the one suffered by our neighbours to south, would be devastating to Canada. The consequences to the retirement incomes of millions of households would be immeasurable and it is precisely those households that we have to protect.
Fortunately, to date, Canadian markets have been relatively spared from large-scale professional misconduct, except for the scandals involving the former directors of Cinar and Nortel. However, we feel that despite the fact that our securities regulation systems are, in the opinion of many experts, much more comprehensive than that which 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 and that the punishment will fit the crime.
This is what prompted the Bloc Quebecois, in the fall of 2002, to call for significant changes to the Criminal Code in order to provide the appropriate authorities with better tools to fight crimes of a financial nature.
A year ago, my colleague from Joliette and I 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 within the scope of their duties for the purpose of making profits or avoiding losses would not be tolerated. This is essentially a question of fair play since making profits or avoiding losses in this manner impacts negatively on other investors who do not have access to the same privileged information.
We had suggested amending the Criminal Code by adding, after section 382, a specific reference to insider trading as a criminal offence punishable by a maximum prison sentence of ten years. We are quite pleased at the interest the government has shown in our proposal by including it in its bill.
Additionally, the Bloc Quebecois proposed that a new offence could be created for securities fraud. This offence, which would be patterned on the measures adopted in the United States, could carry a ten-year jail term. It would prohibit fraud when selling or buying securities. The Bloc had also proposed two amendments to section 397 of the Criminal Code. This section clearly stipulates that fraud is committed by someone who:
—destroys, mutilates, alters, falsifies, makes a false entry in or omits a material particular from, or alters a material particular in a book, paper, writing, valuable security or document.
In our opinion, this provision could have applied to falsified financial statements. Furthermore, subsection 2 of this section makes it a specific offence if documents are falsified with the intent to defraud the creditors.
Currently, both offences carry a five-year prison term. We believe that this sentence is so light that it might not deter unscrupulous individuals from committing fraud for millions of dollars. Consequently, we had proposed increasing the maximum term of imprisonment to ten years.
Finally, we proposed adding a third subsection to section 397 of the Criminal Code to specifically target the falsification of financial documents with the intent to defraud shareholders. We believe that shareholders are a more vulnerable category since, unlike the majority of creditors, their investments are not guaranteed. Furthermore, although the information they are provided with is accessible, it is not easy to understand.
I would remind hon. members that these small investors are included in the major pension funds, and few such investors know exactly what is in their portfolio. We therefore have trouble seeing the reason why there would be a specific offence relating to fraud of which creditors are victims, and yet where shareholders are concerned a similar provision would not be included in the Criminal Code. This is precisely the flaw the Bloc Quebecois wants to correct, and we are hopeful that the government will realize the singular nature of this situation.
As I have said, the government plans to add to the Criminal Code a provision defining insider trading and its criminal nature, subject to up to ten years in prison. Although insider trading is banned at this time under provincial legislation on the sale of securities, and the Canada Business Corporations Act, this new Criminal Code offence is intended for the most egregious offences that merit stiff criminal penalties.
This new proposal for an offence being directly modelled on the Bloc's proposal, we cannot be anything but pleased that it is included in the bill. It seems, for once, that the government has heeded the opposition and bowed to our arguments.
The same thing goes for threats of reprisal against employees. It is necessary, indeed vital, for there to be special protection for employees who blow the whistle on fraud, or contribute information that leads to its discovery by assisting law enforcement officers in the investigation of such situations. The purpose of this is both to reveal such financial frauds and to protect employees from the intimidation which might occur in such circumstances.
Often these people play key roles in the disclosure of corporate scandals, but as a result are at risk of intimidation or threats, including action affecting their employment or means of livelihood. Creation of a new offence of threat or reprisal relating to employment would encourage people with inside information to cooperate with law enforcement officials and would punish those threatening or making use of reprisals. Let us note in passing that this offence would be punishable with up to five years' imprisonment if Bill C-45 is passed with this provision.
Overall, prison sentences would be increased to reflect the gravity of the crime and its repercussions. The proposed reforms would establish aggravating circumstances, which the courts should take into consideration in setting sentences. Thus the bill calls for maximum sentences to rise from 10 to 14 years for the present fraud offences under the Criminal Code, and for those affecting the public market. Maximum prison sentence for market manipulation offences increase from 5 to 10 years.
Factors such as the extent of the economic impact or any negative impact on investor confidence or market stability, defined as aggravating circumstances, could lead to stiffer sentences.
It is also of particular interest that, under these provisions, the accused or convicted person cannot invoke a reputation in the community or work as an attenuating factor for sentencing, This is precisely because these qualities are, more often than not, used to defraud and commit crime. We do acknowledge that these proposals are highly interesting, but regret that the government has not chosen to make use of our suggestions on stiffer sentencing for offences under section 397 of the Criminal Code.
I wish to call the attention of the House to the fact that Bill C-46 will force professionals to breach their duty of confidentiality.
Under certain circumstances, the government's legislative proposal would force a professional to produce information or documents, which could result in the disclosure of confidential information infringing on an individual's privacy.
While the clauses in question provide that the production order may contain terms and conditions to protect a privilegedcommunication, particularly between a lawyer and theirclient, the fact remains that confidential information might be disclosed in certain circumstances. We must therefore ask ourselves if forcing a professional to provide confidential information could undermine the professional-client relationship of trust.
However, a person named in an ordermade under these provisions may apply to a judge for an exemption from therequirement to produce any document, data orinformation referred to in the order. It remains to be seen what bases judges will use to prohibit the disclosure of confidential information.
Before I conclude, I would like to come back to an issue I raised at the beginning of my speech about the involvement of federal prosecutors. In fact, this includes some irritants that would need to be alleviated for the bill to be passed quickly.
As you know, financial market regulation comes under the jurisdiction of Quebec and the other provinces, as does the administration of justice.
Under this bill, the attorney general of Canada would have concurrent jurisdiction with the provinces and the 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 cases that threaten the national interest in the integrity of capital markets.
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.
We cannot support such a deliberate encroachment by the federal government in provincial areas of constitutional jurisdiction. What is even worse is that all of this goes to prove the federal government's intent to infringe upon yet another area of Quebec and provincial jurisdiction, the securities market.
Lastly, we are now debating the principle of the bill and we look forward to having the opportunity in committee to examine some of these issues in greater detail. Therefore, at this time, the Bloc Quebecois will support Bill C-46 in principle.