Mr. Speaker, I am very pleased to rise today to speak to this bill. Once again at the outset I have to say that we support the bill, as do all of the parties in the House, I believe. I think the bill will eventually achieve success.
To deal with some of the issues as to what the bill actually does and, further than that, what the bill should actually do and what the government should be doing to help with the problem gets the debate expanded a little bit.
The intent of the bill is to crack down on white collar crime and increase justice for victims through measures that include a two-year mandatory minimum sentence for fraud over $1 million, additional specified aggravating factors for the court's consideration at sentencing, a new type of prohibition order, new obligations on the judge with respect to restitution orders, and a new type of impact statement to consider at sentencing.
Those are the nuts and bolts of what this bill does. On that basis, for that purpose, we all support this bill. It has gone through committee at this point.
The problem is that the bill does not do some of the things we would like it to do, and will not put as big a dent in the area of fraud as the government pretends it will. It is really not going to solve a huge part of the problem.
For example, the fraud provisions of the Criminal Code were most recently amended in 2004 in response to the global impact of corporate scandals associated with such companies as Enron, Tyco and WorldCom.
These amendments created a new offence of improper insider trading, increased the maximum sentence for the offences of fraud and fraud affecting the market from 10 to 14 years and established a list of aggravating factors to aid the courts in sentencing.
The federal government also announced it would create a number of integrated market enforcement teams, which were the IMET teams, composed of Royal Canadian Mounted Police officers, federal lawyers and other investigators such as forensic accountants to deal with capital market fraud cases.
Now, that initiative was a positive initiative. That is sort of part of what best practices, as least best practices of the United States, would indicate that we should be doing. Those cases that I referred to, Enron, Tyco and WorldCom, were all American cases. We know that the Americans successfully charged, convicted and put in jail, I believe it was, 1,200 white collar fraudsters, including the executives of these three companies.
We were attempting in 2003, under the previous government, I gather, to come to grips with what would happen if such an experience as Tyco or Enron were to happen here. We had similar cases in Canada, such as Bre-X. I think members are familiar with the Bre-X situation. We adopted what I would think would be a positive initiative in that year, 2003.
The Government of Canada created the IMET program and funded it through the RCMP. Ten IMET operations were set up in four of Canada's major financial centres, and the mandate was to investigate and lay charges for serious criminal activity involving capital markets.
According to the 2007-08 IMET annual report, the program's total budget increased from $13.2 million in 2005 to $18.9 million in 2008, and then the budget decreased to $16.1 million in 2008-09. From December 2003, when the program began, until March 2008, 5 investigations led to 9 individuals being charged with a total of 29 Criminal Code offences.
In fiscal year 2008-09, however, 17 individuals were charged with 979 counts. A total of 5 individuals have been convicted since the IMET program was established, with sentences ranging from 39 months to 13 years.
The issue really becomes why and how the Americans can put away 1,200 white collar criminals in the last 5 years and Canada manages to convict only 5. Clearly it is an issue of resources, an issue of commitment on the part of the government to pursue these sorts of activities in this country.
The fact of the matter is that Conrad Black, while he committed his crimes right here in Canada, which involved the non-competition fees when he sold his newspapers to Izzy Asper and the Canwest organization, was able to pocket $20 million or $40 million in non-competition fees. While common in business, those fees were supposed to go to Hollinger, his company. When the Hollinger shareholders discovered that those fees had been diverted and that Conrad Black and his cohorts had pocketed the fees and made off, they of course went to the authorities to try to get restitution. It was the American system, as imperfect as it is, that actually got results and Conrad Black did get put in jail. I think he is out now, a bit too early, but at least he got put in there.
That to me is the difference between the American system and the Canadian system, in that it actually can show some results against white collar crime, whereas in Canada we have almost no good news on that front.
I gave the most recent IMET results, but I have a quote here from Canadian Business Online, from September 24, 2007. The headline was “Canada's losing war against white-collar crime”. The author was talking about the RCMP's launch of the IMET, the integrated market enforcement team that I spoke about, an elite squad of investigators who are supposed to work together to crack down on white collar crime, but the results are very disappointing. The United States justice department racked up 1,200 convictions against high-level executives, from Enron and other companies in the last 5 years, and at that time, in 2007, the IMET had only managed to get 2 charges and both of those charges were against the same person.
However what is interesting is that the author of the article went on to say:
Just ask people on Bay Street who they are afraid of. It's not the cops, it’s not the...[Ontario Securities Commission].
That is what they should be afraid of or concerned about.
It's the U.S. Securities and Exchange Commission because they have real teeth.
Is that not an irony, that on Bay Street, Toronto, the financial hub of Canada, the players are not the least bit worried about Canadian police? They are not worried about the Ontario Securities Commission. It is a regulator. They are not concerned about that regulator, but it is the U.S. Securities and Exchange Commission that has some real teeth and they are concerned about it.
Clearly we have to upgrade our system to be on par with the American system, and we all know that the Americans are not exactly happy with their system. They are making some changes to their system as well, because there was a lot of abuse during the last five years in the United States. It is just that they seem to be able to catch a lot more of it and they have managed to get results when they take action, as opposed to us.
I feel that part of the problem here, and it is also a problem in the United States, is that there is too cozy a relationship between the regulatory authorities and the people they are regulating. Rather than hire police-oriented people and enforcement-oriented people into these regulatory bodies, what they tend to be is a retirement ground for people from the industry. So if someone works in the insurance business or investment business for a number of years and then a job opening comes up in the Securities and Exchange Commission, they apply, they get the job, and now they are regulating the very company they were just working for the week before.
And so, it presents itself as an extremely cozy relationship when we have the regulators and the regulated companies attending the same Christmas parties, golfing together at golf tournaments, and it is no surprise that when something happens, they do not move quickly enough to deal with the problem.
I want to talk about Harry Markopolos because his is a very interesting case, too, in the United States, because when these schemes, Ponzi schemes and others in the United States, are uncovered, it is often discovered that in fact there is somebody who knew about the scheme, who blew the whistle on the scheme as much as 5 years to 10 years before the scheme actually fell apart.
That was the case with Bernie Madoff's Ponzi scheme. A number of years before, I believe as far back as 10 years before, Harry Markopolos discovered what was going on with Bernie Madoff. He, at the time, was working in the same type of investments that Madoff was. His company, Rampart Investment Management, in Boston, Massachusetts, came to Harry and said, “We have a competitor out there by the name of Madoff”, of whom not that many people were aware at the time although he had been around for many years, “and we have trouble understanding how he is managing to get consistent gains on a month-by-month basis”.
That is one of the red flags for irregularities and Ponzi schemes, when a fund someone has invested in is giving a positive return month after month when any fund manager, no matter how good he or she is, will have some months where they make a decent return because of selling off some of the assets and buying others. They are going to have some months where they make 20% and they will have some months where they may lose 2% or 3%.
However, in this case, Madoff was showing a positive return consistently, month after month, year after year.
Harry's boss asked him to check into this situation to see how Bernie did it, his thought being, “Whatever Bernie is doing, maybe we should be doing the same thing. We have to learn from what he is doing and follow his pattern”.
It only took Markopolos a half hour to prove that this strategy was not possible, on behalf of Madoff, and he reported it to the Securities and Exchange Commission on several occasions over a 10-year period. He documented his files and sent them in to the investigators and found that the investigators would say, “This man has been around a long time. Nobody else is complaining. You are the only person finding fault with him. Not only that, but you are a competitor, right? So we should not listen to you because you have an axe to grind. You want to find out what his secrets are so you can simply employ them as well”.
The sad part of all of this is that I think perhaps $65 billion has gone missing because of the Bernie Madoff situation.
Yes, he has been put in prison for 150 years and there is some type of restitution taking place but very little.
The fact of the matter is that these types of schemes are not all big ones like the Bernie Madoff scheme. We have them in Manitoba on a much smaller scale of $50,000 to $100,000 being stolen by investment fund people, investors and so on. This is a common problem.
What we will see is during good times these schemes tend to take off, they are very robust and tend to expand during good economic times. It is when the economy turns, whether a sector turns or whether the whole economy turns, flat lines, and drops a bit, particularly in a recession or depression, that these things are exposed
Essentially what happens is a Ponzi scheme is a type of scheme whereby the money that is brought in from the initial investors is paid out to the old investors to keep them in the scheme and no money is actually invested in the market.
There are all sorts of different types of schemes. The Ponzi scheme was developed by Charles Ponzi who has a very storied history in the United States and actually a connection to Montreal. I spoke about that one other time in a previous speech. He had involvement and some training in what later became the Ponzi scheme concept in Canada, in Montreal.
We have other types of frauds that are very common and actually very close to home. We have mortgage frauds. One such mortgage fraud is defrauding essentially the bank. The bank turns the responsibility over to CMHC, so in fact it becomes a CMHC responsibility for most of this. There is one being uncovered right now in Alberta. As a matter of fact, one of the members of the government has been mentioned as having some connection to it. We are talking about millions of dollars that are being defrauded from the mortgage companies.
We had one in Manitoba in 1995. A gentleman came into my office with a box of files and gave us a lot of information on a scheme involving mortgage fraud. Essentially what it boils down to is an individual buys houses. He uses straw buyers, usually people who are just recently out of prison or first-time buyers who are sort of naive. He gives them a couple of thousand dollars cash and buys them some appliances and has them put the cash in the bank to get a receipt that the money is in the bank. That is in order to obtain a mortgage on a house that he has previously bought and now he is selling to them at a much higher price.
Perhaps he bought the house, in today's numbers, for $100,000 and practically the same week he turns around and gets the straw buyer to buy that house from him for $150,000 and he gets an appraiser to give him an appraisal for that amount.
It has to involve a real estate agent, appraisal, a lawyer and so on. In the Winnipeg situation with the RCMP we spent a lot of money uncovering this whole mess. At the end of the day what really happened? The guy that perpetrated the whole thing is still in a business, the window and door business now. I do not know whether anyone was really seriously disciplined, the lawyers, the real estate brokers, the appraisers, and whether anyone lost their jobs. It certainly got a few headlines at the time. However, there are many variations. It is not all just Ponzi schemes.
In the United States, and I know I am running out of time, so I may be able to deal with this issue in questions and comments, but my colleague, the member for Windsor—Tecumseh had some answers to this--
