Mr. Speaker, I am very pleased to speak to Bill C-21, An Act to amend the Criminal Code (sentencing for fraud).
Bill C-21 was introduced in the House on May 2, 2010 by the Minister of Justice. In fact, it is identical to Bill C-52 which was introduced during the second session of this Parliament, and did not become law because of prorogation, which we are very familiar with around here, on December 30, 2009.
The intent of the bill is to help 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 in 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 in sentencing.
The fraud provisions of the Criminal Code were most recently amended in 2004 in response to global impact of corporate scandals associated with companies such 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 composed of RCMP officers, federal lawyers and other investigators, such as forensic accountants, to deal with capital market fraud cases.
Now the question is, with all of this supposed action on the part of the government, why are we not seeing results? Why are these fraud schemes still being uncovered?
We have to go back a number of years. I think most people have heard of Charles Ponzi and Ponzi schemes, but there are still a lot of people who are not familiar with the concept. A very large percentage of fraud schemes that are uncovered are in fact of this type.
Essentially, it is the use of investors' money that is taken in today to pay off previous investors. What happens is that organizations offer high rates of return and they entice people to give them money. Then, rather than invest the money in proper facilities, they simply use the money to give a promised return to their previous investors. We know that in doing that, eventually things are going to fall apart.
These schemes tend to go along. In some ways they are similar to the chain letter concept that people are familiar with. While the market is expanding, as happened in the 1920s and in the 1990s, these schemes can continue unabated for a number of years before they are found out. Eventually they are all found out because when the market drops, the people who are running the scam do not have the funds available to pay out. It essentially becomes a run on the bank. Everyone wants their money back, and they do not have the liquidity to do it. Basically, they run out of people to invest in their scheme.
In the case of Charles Ponzi, he collected approximately $9.5 million from 10,000 investors by selling promissory notes paying a 50% profit in 45 days. As a matter of interest, Charles Ponzi lived in the United States for a number of years, but there is a Montreal connection. In 1907, Ponzi moved to Montreal and became an assistant teller in a newly opened bank basically servicing new immigrants to the city. The man who owned the bank paid 6% interest on bank deposits, double the going rate at the time.
I emphasize the fact that the success of these schemes is based on people's greed, in that they are offering a very high rate of return. That is something the public should be very aware of. On checking the market and the banks, people will see that the average rate is roughly the same among the banks and institutions. When one institution offers double the rate, then people should be suspicious that something is wrong.
Even today, if one financial institution comes out with an offer that is higher than the others, people should not be lining up to buy that investment. People should be questioning why the institution would offer a higher rate of return. Perhaps it is short of money and may not be able to pay investors back.
In this case, Mr. Ponzi eventually rose to be the manager of that Montreal bank. He found out that the bank was in serious trouble because of bad real estate loans. Does this sound familiar? This was in 1907, in the last century, not in 2007. The bank was funding interest payments not through profit on investments, but by using money deposited in newly opened accounts. The bank eventually failed. The owner ran away to Mexico with a large part of the bank's money. This is how Mr. Ponzi got started. At the end of his career, I believe he died penniless and was not able to hide his ill-gotten gains.
However, that is not the case with the modern versions of the Ponzi scheme, in the sense that the schemes we see now are sophisticated and are planned well enough in advance that the money, as one of the members mentioned earlier, is sent off to tax havens. In 1907, Mr. Ponzi probably did not have the wherewithal to take his ill-gotten gains and get them off to Panama, Switzerland, or other tax havens. Perhaps he even believed that his scheme would never end. Maybe he misunderstood what he was doing.
The same cannot be said for an investor like Bernard Madoff, who essentially stole $65 billion. We are not talking about millions; we are talking about billions, $65 billion. This is a guy who opened the stock exchange on a routine basis. He knew all the players. He was an insider. He was a guy who was approached for advice.
Ten years before Bernie Madoff was arrested, there were attempts to gain the attention of the Securities and Exchange Commission in the United States with information. It was well documented before the House of Representatives in the United States last year when Harry Markopolos detailed the whole sordid history. Ten years prior to that he had worked for Rampart Investment Management in Boston and his boss asked him whether he could duplicate Madoff's strategy. He said that the funds police each other. In the competitive world of business, competitors watch each other. It was not a surprise to other competitors in his field that he could produce returns because it is to be expected that some funds will out-perform others, but to do it on a consistent basis, month after month, year after year, raised red flags.
Somewhere along the line, Bernie Madoff's fund should have had a loss. At least once over a 10 year period, he should have shown a loss. Even the best of funds that go up on a routine basis do not go up forever. If the sector the funds are invested in does well, it will do well for maybe six months or a year, but it will not do well each and every month, year after year. Bernie Madoff's fund raised a red flag.
Harry Markopolos figured this out very quickly. He gave information to the SEC, but it did not listen to him. The SEC on several occasions checked Bernie out. It investigated his funds annually and stated that his returns were on the level. The SEC, the cop that was supposed to police the fund, did not do its job. It did not do a proper report, and this allowed this ponzi scheme to continue unabated year after year. Meanwhile, more people and organizations bought into the fund. This shows that deregulation has created a big problem in the United States.
Members will know that in the 1920s, after the stock market crashed, the president of the day was looking for somebody who could regulate the financial institutions and the stock market on Wall Street. Many members will know that he recruited none other than Joseph P. Kennedy, who had made large amounts of money in the wild and woolly unregulated markets of the 1920s. Justifying his appointment of Mr. Kennedy, the president said something to the effect that it took a thief to catch a thief. A lot of the rules put in place under Mr. Kennedy stayed in place for many years.
The system operated fairly well under those rules until, during the Bush years, Republicans adopted a philosophy of deregulation. The whole idea was to deregulate world markets. All financial institutions had to go global, and the way to do that was to have super financial institutions.
We saw this happen more or less in Canada when the current Conservative government was in opposition and the Liberals were in power. Canadian banks were trying to get the government to deregulate, which would have allowed them to swallow each other up and get bigger.
To the Liberal government's credit, it did not do go this way. That is why the current Conservative government is not in the mess that it could be in right now. I am sure the Liberals were all for deregulation, but had they had their way we could be in as big a mess as Ireland, Iceland, Portugal, or any of the other countries that opted for a deregulated environment.
A big part of the puzzle is to deal with this deregulated environment and try to pull the whole system back under some kind of control. The United States is doing that. It is starting to re-regulate huge sectors of the investment industry, the banking industry, in an effort to combat this type of activity. In spite of that, the American system over the last 10 years had a much better track record than the Canadian system. All we have to do is look at the number of bad guys that the Americans put in prison over the last few years and compare it to how many the Canadian system put in prison. We would have to look long and hard to find anybody who ever went to jail in Canada for white collar crime and fraud. There may be one or two, but that is about it. We are talking about single digits.
In the United States, several hundred people were put in jail for their white collar crimes, including the people who ran WorldCom and the people who ran Enron. Conrad Black, a Canadian who committed his white collar crimes in Canada, was not touched by Canadian authorities. In fact, he was eventually prosecuted and put in jail by the American system, the same system that spawned Bernie Madoff and the Ponzi scheme and the same system that is now attempting to re-regulate itself.
In Canada, a parallel country, we were not very aggressive on enforcement and the prosecution of these white collar criminals, judging by our record, and we are not looking at re-regulating. So I would say we have a long way to go. The government is bringing in this bill, which we will be supporting to get to committee as we did the last time before the bill died after the House was prorogued, but remember that this is just a small part of the whole puzzle that the government should be dealing with. The government should be looking at setting up some sort of task force to look at re-regulation. No doubt it will, in view of what is happening in the United States.
We also have to look at tax havens. We had a very comical situation here last week. We were debating the implementation of a free trade deal with Panama, which is on the tax haven list of the OECD and a list in France indicating that it is a tax haven; 350,000 private companies are hiding money in Panama and the government is talking about getting a free trade deal in place with Panama when even the Americans will not do it because Panama will not sign on to the OECD protocols about exchange of financial and banking information. On the very day that this was happening, The Globe and Mail carried an article about an employee of a Swiss bank who left the bank and went to France with computer disks containing several thousand accounts. But 1,800 Canadians are on that list. The government was somewhat embarrassed, because there were these 1,800 people who, by the way, had to invest a minimum of $500,000 in the Swiss bank.
They were flat-footed because they do not have the answers. They have not done anything on cutting down tax havens and trying to stop tax evasion. They have a moratorium. Two years ago when a similar bank employee from a Liechtenstein bank walked away with computer disks and went to Germany and sold them to the German government, Canada found that there were 100 people from Vancouver on the list. What happened? They were given amnesty.
The Conservatives say that if anybody wants to come in and admit they have money in Panama or someplace they should not have it, they are free to do a voluntary reporting and the government will not do anything to them. It will not even tap them on the wrist. If they pay the back taxes, they are home free. Is this any kind of message to be giving people out there, telling them that they will have an amnesty if we catch them?
Now we have 1,800 people whom we have uncovered, not because of all this police activity, but because of a bank employee.
