If that day should come we will be spared the embarrasment of watching a group of Canadian fraudsters (Conrad Black) be tried in the United States for frauds perpetrated as much in Canada as in the United States.
Stpehen Sibold, a former chair of the Alberta Securities Commission gropes toward the right answer in a column today in the Globe and Mail (reproduced below)that suggests that the time has come to criminalize securities fraud in Canada and to deal with it through the Criminal Code rather than through provincial securities regulations. This would have the effect of giving the Federal government the power to create the crimes. Unfortunately, due to the divided nature of our criminal law system, this would leave the provinces in charge of investigating and prosecuting the law breakers -- a job which they have demonstrated themselves manifestly incapable of doing effectively. Furthermore, to be entirely effective, it is hard to see how the criminalization of some of the more sophisticated types of securities misdeeds (insider trading, false statements in a prospectus, tipping) could be effectively criminalized without being closely coordinated with securities regulation.
What would be better for everyone would be for the Federal government to announce that given the nature of the modern securities industry it was taking over the regulation of it under the power to regulate interprovincial trade and commerce as well as international trade and commerce. A national securities regulator would be established and job offers would be made to each of the current provincial chairs and a selection of senior prosecution and investingation staff. This body would be backed up by the RCMP as well as a crack team of Federal criminal prosecutors (such as those who handle major drug charges).
A bold step like this is really a no lose proposition for a conservative government: it would reduce senseless multi-jurisdictional costs for most companies; protect small investors and pension funds more effectively from fraud; and would scotch the sense that Stephen Harper has never seen a federal power he likes (does anyone remember the Alberta firewall?). Furthermore, by poaching the senior provincial staff, Ottawa would be protecting the provinces from severance pay obligations and also would bring together a group of dedicated and intelligent public servants who have shown a serious dedication to doing what they can given the limited tools their provincial masters have and can give them. Finally, even though the provinces will squawk it will actually be hard for any of them to make a coherent or interesting argument in favour of a system that only helps white collar fraudsters.
Want U.S.-style regulation?
Stephen Sibold is a lawyer with Bennett Jones LLP in Calgary, currently studying at the University of California, Berkeley as a 2007-2008 Canada-U.S. Fulbright Scholar. He is a former chair of the Alberta Securities Commission and former chair of the Canadian Securities Administrators.
August 20, 2007 at 6:20 AM EDT
If we wish to "get tough" with criminal misconduct in Canada's capital markets, governments need to begin treating this conduct as a matter of criminal law rather than securities regulatory law.
The recent convictions in the Hollinger case in the United States have, predictably, fuelled debate in Canada as to whether similar cases would have been pursued here - let alone concluded - with the same vigour. Critics frequently cite the absence of a single national securities regulator as the root cause of the perception that Canada does not have as strong - or fearsome - a commitment to enforcing securities laws as does the United States.
While the attention of commentators has been focused primarily on the enforcement record of securities regulators, I believe that the more fundamental issue to address is how Canada deals with serious "white-collar" or commercial crime in its capital markets as a matter of criminal law.
First, we need to understand the fundamental differences between regulatory law and criminal law. Unlike the Criminal Code, the provincial securities acts are regulatory in nature and not penal. The focus of regulatory law is the protection of societal interests, not punishment of an individual's moral faults. As the Supreme Court has stated: "While criminal offences are usually designed to condemn and punish past inherently wrongful conduct, regulatory measures are generally directed to the prevention of future harm through the enforcement of minimum standards of conduct and care."
Securities regulators typically deal with "capital market" offences such as insider trading, misrepresentations in public documents and illegal trading in securities. Their usual sanctions involve fines or orders restricting future activity, such as cease-trade orders or orders prohibiting an individual from serving as a director or officer.
It is important to appreciate that all of the recent high-profile corporate scandals in the United States - Enron, WorldCom, Tyco and Adelphia, to name a few - have involved prosecutions of criminal law, not enforcement of securities legislation. The accused in those cases were charged by prosecutors under criminal laws and convicted of criminal offences, fraud being common to all.
Second, we need to understand some critical differences between the treatment of white-collar crime under the respective criminal justice systems in the United States and Canada. Unlike Canada, strict sentencing guidelines exist in the U.S. for federal offences. For example, Bernard Ebbers of WorldCom fame could have been sentenced to 30 years imprisonment under U.S. federal sentencing guidelines (rather than the 25 years that he received).
While U.S. state judges have more latitude in sentencing, the state judge in Tyco sent a strong message by his sentencing of Dennis Kozlowski to 81/3 to 25 years imprisonment. In Canada, no such sentencing guidelines exist and there is little precedent for lengthy prison sentences for individuals convicted of commercial fraud.
Indeed, last year, a Quebec judge sentenced Chuck Guité to 3½years in prison for his conviction on five counts of fraud. The United States - at both the federal and state levels - takes a much tougher approach than Canada to white-collar crime.
So, what must be done in Canada if we wish to "get tough" with criminal misconduct in our capital markets? We must first acknowledge that serious white-collar crime is properly the purview of the criminal justice system and not the securities regulators. The federal and provincial governments then need to make enforcement of white-collar crime a higher priority and allocate appropriate resources to it. For example, police forces, prosecutors and judges need specialized training. White-collar crime, such as corporate fraud, typically spawns complex, time-consuming and document-intensive cases. Unfortunately, most prosecutors and judges (especially at the Provincial Court level) have had little opportunity to acquire experience with such kinds of cases. Police forces and Crown prosecutors need to allocate the resources to pursue commercial crime with the same effort as violent crime. Parliament needs to adopt stricter sentencing guidelines so that judges can treat commercial crime with the same degree of seriousness as violent crime.
The appropriate response to criminal misconduct in Canada's capital markets is for the federal and provincial governments to treat it as a criminal rather than a regulatory problem and assign to it the high priority and necessary resources which it requires.