BCSC welcomes Ottawa's latest crackdown on crime
B.C. Securities Commission *BCSC
Thursday June 12 2003 Street Wire
by Brent Mudry
In a sign that Ottawa is finally taking stock market crime seriously, Canada's justice minister introduced proposed new laws to tackle capital markets fraud in Parliament on Thursday, including increased maximum sentences, investigatory production orders, corporate whistleblower protection and a broadening of insider trading legislation.
Perhaps more importantly, the federal government also unveiled details of plans for up to nine Integrated Market Enforcement Teams, or IMETs, made up of RCMP investigators, lawyers and accountants dedicated to capital markets fraud cases.
"We do welcome the development," states Michael Bernard, spokesman for the British Columbia Securities Commission, the former home of the failed B.C. Securities Fraud Office. "We all look forward to more dramatic and swift action against those who violate securities laws, he added."
Previous much-vaunted efforts, ranging from B.C.'s Securities Fraud Office, a joint BCSC-RCMP operation that opened with much fanfare and was quietly shut down a few years ago, to the Canadian Market Integrity Scheme, launched with similar fanfare in 1966, but achieved little success in significant convictions, sentences or in dispelling Canada's image as a haven for unprosecuted white-collar market crime.
Not surprisingly, a veteran market prosecutor remains pessimistic about the chances for more convictions or meaningful sentences until Canada's judges treat white collar crime as seriously as street crime, violent offences and other largely blue collar crime. "When was the last time anyone was condemned to 10 years in jail for any market crime?" asks the prosecutor, who requested anonymity. "Why bother raising the maximum sentences when the current maximums are never reached?"
RCMP Chief Superintendent Peter German, the Director-General of the force's Commercial Crime Section, remains confident any naysayers will be proven wrong. "This legislative package and new sentencing ranges shows (the judiciary) that Parliament wants these offences treated more seriously," Mr. German told Stockwatch. The senior officer concedes there has been much disappointment in the past, but suggests the new efforts will go far to "changing that attitude."
The federal government announced Thursday the creation of six to nine IMET market prosecution teams, phased in over three years, with a total five-year budget of up to $120-million. These teams are based on the model of the RCMP's existing Integrated Proceeds of Crime, or IPOC, units, which handle money laundering and other crime proceeds.
Although Ottawa often announces programs by shuffling existing dollars around, Mr. German stresses that "this is all new money."
In year one, two teams will be launched in Toronto and one in Vancouver, all targeted by March 31, 2004. Mr. German is optimistic these first three teams will actually be in place by this fall. He confirms that Inspector John Sliter has been selected to co-ordinate the national program in Ottawa, while Inspector Craig Hanniford will be the implementation manager in Toronto, with other postings, including the Vancouver head, to be announced, at least internally, in the next couple of weeks.
In year two, three more teams will be launched: one each in Calgary and Montreal, and a third in Toronto. After that, an evaluation will be made before launching a final three times in year three: a second team in each of Vancouver, Calgary and Montreal. The phased-in program will be "fully funded" by the fourth year.
Each team will consist of about 11 members, including five or six investigators, investigative assistants to handle the grunt work, a lawyer, a forensic accountant and technical support staff including major case management.
Further police officers may be added through secondments, and dedicated prosecutors will be assigned from the overall budget.
A major focus will be speed -- as Canadian commercial crime probes are notorious for being bogged down for years. Mr. German notes he also hopes to significantly speed up the process for Mutual Legal Assistance Treaty, or MLAT, requests, which are basically investigative assistance requests sent to other countries, including secretive offshore havens, which often figure prominently in complex white collar cases. The senior officer notes he has seen some MLAT requests take years, while the odd one is done in virtually a day.
Mr. German notes the new teams will be "very targeted and very strategic," selecting cases with a substantial impact on the market and investor confidence. While penny stock cases may not generally qualify, if they are big enough, like Bre-X, they will. "The real emphasis is to protect Corporate Canada," from a loss in investor confidence, says the senior officer.
In outlining the new legislation in Parliament, the Justice Minister highlighted two proposed amendments to the Criminal Code of Canada. The first relates to "improper insider trading," targeting employees of companies, and others, who benefit from inside information. The second, a whistleblower protection, attempts to shield employees who tattle on their bosses.
The new provisions include amendments to enhance evidence-gathering tools, adding production orders to the Criminal Code. While such production orders would allow invesigators to get documents or data from innocent third parties, such as brokerages, banks and other financial institutions, they will likely be as wide open for attack by defence lawyers as existing search warrants and wiretap authorizations.
Before police can get a "general production order," they must prove to a judge or a justice of the peace that there are reasonable grounds to believe an offence has been committed, that the specific documents or data sought will produce relevant evidence, and that the recipient of the order has the possession or control of this information.
Of course, Canada's Charter of Rights and Freedoms, the legacy of Pierre Trudeau, can be used to argue against "unreasonable" searches and seizures. In addition, those who receive production orders can also object, by making an application to the court, to producing information on numerous grounds, including if the information is privileged or protected from disclosure, or because it is not in their possession or control.
On the sentencing end, the maximum sentences for current Criminal Code offences of fraud and fraud affecting the market will be raised from 10 years to 14 years. Maximum sentences for stock manipulation, which Ottawa apparently feels is less important, and is virtually impossible to convict on, will be doubled from five to 10 years.
"In addition, I have introduced specific sentencing factors that the courts will be required to take into consideration, so that the most serious offenders are treated more severely. Aggravating factors, such as the extent of economic damage or amount of profits unlawfully obtained, could warrant a more severe penalty," states Minister Cauchon.
"Furthermore, a person's reputation and status in the community or workplace -- which are traditionally used as mitigating factors to lower penalties -- will now be inapplicable in these cases, when those who commit serious capital markets fraud rely on these very factors to carry out their crimes."
bmudry@stockwatch.com
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