Jurisdictional issues, lack of personnel, and a national police task force that has not produced results all contribute to what lawyers and academics say is Canada’s dysfunctional approach to prosecuting white-collar crime.
“There is no question that the U.S., if you look empirically, is way better at enforcing these kinds of things,” said Ramy Elitzur, a professor at the University of Toronto’s Rotman School of Management.
Nearly eight years has passed since former Nortel chief executive Frank Dunn, former chief financial officer Douglas Beatty, and former controller Michael Gollogly were fired from the one-time tech industry heavyweight. Accused of altering financial statements to ensure lucrative bonuses, they only stepped in court to hear opening statements in their trial on Monday.
If the proceedings last the expected six months, it will prove to be a shorter ordeal than the prosecution of fraud at theatre company Livent, which went bankrupt in 1998, a few years before the U.S. scandals at Enron and WorldCom.
Livent founders Garth Drabinsky and Myron Gottlieb were convicted in 2009, and were not jailed until they lost an appeal last fall. The principles at Enron and WorldCom went to prison more than five years ago.
“It does take longer here,” said P.M. Vasudev, a law professor at the University of Ottawa. “There is a perception that enforcement on this side of the border is not as rigorous and it is more difficult to secure convictions.”
Vasudev and others point to the Canadian securities regime, which is a patchwork of 10 provincial regulators, rather than the single-regulator system of the U.S. Securities and Exchange Commission.
Investigations of major cases are carried out by the Royal Canadian Mounted Police’s Integrated Market Enforcement Teams, established in 2003 to beef up the country’s approach to prosecuting corporate crime.
The several layers of authority lead to delays, critics say, while the RCMP has not lived up to expectations. “I think that the RCMP is a great organization, but I mean the skills you need to investigate something like this are very very different than, say, a homicide,” says Elitzur, echoing a common perception.
Also a problem is the fuzzy line between the authority of provincial regulators, which have powers to lay quasi-criminal charges, and Crown prosecutors.
Even so, observers say the record of prosecutors in Canada has improved in recent years. The Livent case, after all, did end in a conviction, as did the prosecution of lawyer Stan Grmovsek, who pleaded guilty to insider trading in 2009.
Looming large in the rearview mirror, however, are debacles such as Bre-X, the largest corporate fraud in Canadian history, involving a gold-salting scam at the company’s Busang property in Indonesia. Enthusiasm over the supposed worth of the deposit drove Bre-X’s market value to nearly $6 billion in the mid-1990s, before independent surveys showed the deposit was worthless, prompting the shares to plummet to nothing.
Chief geologist John Felderhof, the only figure in the fraud ever charged with the crime, was acquitted of insider trading 2007.
Such cases have long stuck in the craw of Canadian market watchers, who say the impression that market security is lax is a deterrent to foreign investment.
Asked about delays in the system, Brendan Crawley, a spokesman for Ontario’s attorney general, said his office takes white-collar crime very seriously. “This ministry has a number of experienced counsel dedicated to providing advice to police and to prosecuting difficult, lengthy and complex criminal cases involving white collar crime,” he said.
Cristie Ford, a law professor at University of British Columbia, said the approach of Canadian prosecutors is not the same as the “get the bad guys” approach of their U.S. counterparts.
“In Canada, the Crown is taught not to think of its job as being to win. . . . They are representatives of the Crown and are charged with administering justice,” she said.
“I’ve often defended the Canadian approach, which is more about compliance before the fact and less about enforcement after the fact, but a compliance-oriented approach is only going to work where the reality of meaningful enforcement is there in the background.”
(Additional reporting by Alastair Sharp)
- Subtitle Analysis
|KPMG’s John Williams suggests GCs should play a greater role in a company’s compliance function.|
Often, it has been a situation when a senor level executive has engaged in some inappropriate behavior such as a form of fraud or other financial misconduct it often involves a call to a forensic accountant. In its recent report, "Who is the typical fraudster?" KPMG looks at patterns in fraud and provides insight based on its analysis of 348 actual investigations, including many cases of financial misreporting.
The findings show that globally, board members at divisional, subsidiary, and corporate levels commit nearly one fifth of fraud (18 per cent), and that senior management still accounts for the largest proportion of frauds perpetrated (35 per cent). The profile of a typical fraudster is: male 35 to 55 years of age in a management position with a fairly lengthy tenure and ideally situated to exploit any weaknesses.
“The interesting thing that comes out of the survey is that that the primary reason for most frauds occurring continues to be the exploitation of weaknesses in internal controls,” says Williams, noting it is more common to see it happen in private companies. “I’ve seen situations where an employee who has worked for a company for 30 years has stolen millions of dollars from them.”
In 2011, some 56 per cent of frauds had exhibited one or more prior red flags but only 10 per cent had been acted on. That means company and public sector employees are failing to respond to warning signs.
Williams says he can see Canadian in-house counsel following on a trend that’s been developing in the United States in which general counsel are working more closely with internal audit functions, compliance executives, and monitoring officers.
Large corporations in the U.S. are setting up compliance officers in cities where they have major subsidiaries. “My sense is that for the most part the people who are now fulfilling those roles are lawyers,” he says.
Those lawyers are mandated to ensure that employees are complying with corporate initiatives such as whistleblowing mechanisms, anti-bribery and anti-corruption policies, as well as concerns over financial reporting or various risk management issues.
“What I think is emerging out of the U.S. is the GC office is taking more of a pro-active role to ensure there are proper governance structures put in place to jointly address the culture of the organization, to make sure people understand how they can report their concerns and make sure the mechanisms are in place to give assurance to anybody who wants to report a concern that it’s a retribution-free environment,” says Williams. “Of course there’s always a caveat on that that if someone does it with a malicious intent all bets are off.”
From his vantage point, Williams says the role of GC has expanded significantly since 2004. “They’re becoming more critical in terms of ensuring that corporations are setting the proper tone and satisfying their statutory obligations in terms of compliance.”
In fact, he says general counsel hold a unique position in an organization. “More often than not, general counsel can stay above the fray. The ones I know don’t let emotion creep into their decision making and are generally effective in steering the corporation down the right path, making sure they don’t stray ethically with difficult situations, and holding everyone else to a higher standard.”
In large organizations the roles of general counsel and compliance may need to stay separate says John Boscariol, leader with McCarthy Tétrault LLP’s international trade and investment law group. “I think the trend we’re seeing is there is a focus on appointing a chief compliance officer that is separate from your general counsel because of perceived conflicts.”
Williams says there needs to be a healthy culture of openness in an organization, and making sure people in finance functions are properly supervised and monitored.
“It’s tough for in-house counsel to be in charge of the internal controls but where they can be great is in the role of making sure the organization is in full control of all the compliance issues and statutes and working on a culture of compliance. From there, once people get it into the DNA of the organization, it doesn’t mean things won’t happen but it really minimizes a catastrophic loss.”
Nortel fraud trial begins in Toronto, Reuters
Military official faces espionage charges, Reuters
Corruption trial begins for 5 ex-Toronto Police officers, National Post
Gun registry appeals new rifle reporting regulations, Reuters
Cruise ship victims may be barred from suing in U.S., Reuters
Thai police seek to detain Hezbollah suspect, Reuters
Jordanian cleric won't be deported: European court, Reuters
Jan. 16 — Federal Court — Alliance of Canadian Cinema, Television & Radio Artists v. Bell Aliant Regional Communications LP
Administrative law: The Canadian Radio-television and Telecommunications Commission sought a reference from the Federal Court of Appeal to determine the status of Internet service providers, specifically do retail ISPs carry on broadcasting undertakings by providing access to broadcasting via the Internet?
Jan. 17 — Quebec — Tessier Ltée v. Commission de la santé et de la sécurité du travail
Constitutional law: This case involves labour relations and the division of powers. The dispute is whether Tessier Ltée’s undertaking of providing heavy equipment rental services and longshoring services falls under provincial or federal jurisdiction.
Jan. 18 — Quebec — Attorney General of Quebec v. A
Charter of Rights and Freedoms: The applicant in this case is challenging the constitutionality of several provisions in Quebec’s Civil Code that do not grant the same rights to those in common-law relationships as those who are married. The applicant lived with a partner for seven years and they had three children together. Following their separation, the applicant filed a motion in the Superior Court seeking child custody, support, a lump sum, use of the family residence, a provision for costs, and an interim order. There is a publication ban and sealing order in the case.
Jan. 19 — British Columbia — Attorney General of Canada v. Downtown Eastside Sex Workers United Against Violence Society
Charter of Rights and Freedoms: The respondents allege that several sections in the Criminal Code related to prostitution infringe on certain Charter rights. At issue is whether the respondents’ challenge of the constitutionality of those sections has public interest standing.
The SCC will also release the following ruling this week:
Jan. 20 — British Columbia — Catalyst Paper Corp. v. Corp. of the District of North Cowichan
Municipal law: Catalyst Paper Corp. challenged the District of North Cowichan’s property tax rates, claiming the rates were unreasonable because they have no relationship to the municipal service it uses or consumes. Catalyst sought a declaration that the property tax rate is illegal but the judge dismissed the petition. The main issue is whether a municipality has legislative discretion, including setting property tax rates, without statutory criteria.
A new report on mediation in adult guardianship matters is calling for specific training and standards in the field.
The report released by the Canadian Centre for Elder Law last week emphasized the increasing importance of the issue given Canada’s aging population. It noted British Columbia’s recent introduction of mandatory mediation in adult guardianship matters through new legislative reforms as well as experiences in the United States in that area that raised several ethical concerns. They include the need to ensure the capability of participants to mediate; conflicts of interest; the necessity for legal representation; and abuse and neglect. Elder mediation, according to the report, “requires a particular degree of sensitivity and skill on the part of mediators.”
“Elder mediation is growing and there is a need to establish practice guidelines and develop competences,” it added.
As the report noted, the issue of mental capacity itself isn’t generally a suitable area for mediation. But other issues related to guardianship, such as who the guardian will be and the extent of that person’s powers, are questions amenable to negotiation and agreement. But given the older person’s vulnerabilities, there are several legal and ethical questions for the mediator.
As a result, the report makes several recommendations. They include training for mediators as well as ethical standards in such matters. It noted that mediators must determine whether the parties have the capacity to participate in the process meaningfully and said pre-mediation interviews are crucial. In addition, it emphasized that in court-connected guardianship mediation, there should be an established process for handling complaints about mediators on the roster and called for an established code of conduct for them.
Canada facing legal challenge over Kyoto withdrawal, Reuters
Moving company used extortion against customer: judge, CBC News
B.C. judge orders condo owner to sell unit, National Post
Federal judge rejects challenge to gun dealer rules, The Washington Post
Motorola did not infringe on Apple patents: U.S. trade judge, Chicago Tribune
Pakistan Supreme Court challenges PM for failing to pursue corruption cases, Reuters
Ireland's High Court declares Sean Quinn bankrupt, Reuters
|John Nunziata has been accused by the LSUC of conduct unbecoming a lawyer.|
Nunziata later admitted to the assault before Ontario Court Justice Fern Weinper, and was sentenced to a year’s probation.
But, in a notice of application filed Jan. 3, the law society alleges Nunziata lied under oath during a Nov. 6, 2008 pretrial hearing before Justice of the Peace Rudy Skjarum, where Nunziata testified that he did not kick Milthorpe.
Nunziata admitted under oath during his trial in May that he did kick the man, according to the notice of application.
The law society alleges Nunziata contravened s. 33 of the Law Society Act that by engaging in conduct “unbecoming a licensee.” If convicted, he could face disbarment.
Law society spokesperson Susan Tonkin confirmed Wednesday a proceeding management conference is currently scheduled for Nunziata 9 a.m. Jan. 23 at the Osgoode Hall.
If Nunziata or his representative doesn’t attend, the LSUC panelist conducting the conference has the option of carrying on the proceedings in their absence, according to the notice.
Nunziata served as MP for York South-Weston from 1984 to 2000. He also ran against David Miller for mayor of Toronto in 2003, and is currently a non-practicing lawyer living in Toronto.
This is the first disciplinary proceeding against him, according to the regulator’s web site.
Que. court delays Rwandan's deportation, The Gazette
Man convicted after Ont. judge upholds nudity laws, National Post
Canadian billionaire charged in massive U.K. bribery case, Toronto Star
CEOs seek reversal of SEC-Citigroup ruling, Reuters
Rhode Island school ordered to remove prayer mural, Reuters
Kenya court pushes elections to March 2013, Reuters
Polish court rules against communist leaders who imposed martial law, Reuters
In 2005, Canada became one of the first nations in the world to formally legalize gay marriage. Same-sex couples have been marrying in their thousands in Canada, and lenient rules on residency requirements for those seeking a marriage licence mean many of them are from abroad.
|Critics say Conservatives seeking to roll back rights. (photo: Reuters/Peter Jones)|
The government’s position has prompted sharp questions about why Ottawa allowed so many foreign same-sex couples to get married for so long before deciding the unions were not valid.
“[This] is about to, if it hasn’t already, make us look like fools on the international stage,” said Martha McCarthy, a lawyer for the couple at the centre of the furor.
“We’re the leaders of gay marriage . . . and the federal government is saying ‘Oh, yes, sorry, we forgot to mention that for the last nine years we’ve been marrying people that we didn’t think those were valid’,” she told Reuters on Thursday.
Critics blamed Conservative government, which they say wants to roll back social rights such as gay marriage and abortion.
Prime Minister Stephen Harper said he was unaware of the case. Justice Minister Rob Nicholson said in a statement he would be “looking at options to clarify the law so that marriages performed in Canada can be undone in Canada.” He gave no further details and did not make clear whether Ottawa would continue to argue that marriages that had already taken place could not be ended in Canada.
Activists estimate that around 7,500 same-sex couples have married in Canada since 2003, when some provinces first allowed gay marriages. About 2,500 involved were foreigners, many from countries and U.S. states that do not recognise gay unions.
Ottawa says the 2005 marriage in the latest case “was not legally valid under Canadian law” because the women could not have lawfully wed in England or Florida. It also cited the Canada Divorce Act, which says any couple seeking to end a marriage in Canada must have lived here for a year.
McCarthy said her clients’ message was: “We can’t get divorced in our own jurisdictions because they don’t recognize the validity of our marriage. You guys here in Canada married us so please give us a divorce because no one else will.”
A Toronto judge will hear the case on Feb. 27 and 28 and decide whether the government’s argument is valid, although the loser is bound to appeal any ruling.
Evan Wolfson, president of New-York-based gay rights group Freedom to Marry, said it would be “extreme, absurd and cruel” to now declare the Canadian marriages invalid.
“This will come as giant shock not only to the couples but to the businesses, employers, banks and others who deal with them so hopefully they’re going to walk back this preposterous undermining of families,” he told Reuters.
The issue could become a political problem for Harper, who said he had no intention of reopening the gay marriage file.
Nick Bala, a professor and family law expert at Queen’s University, said the case underlined existing problems with the way gay marriage works in Canada.
“There are good reasons why Canadian family courts are only going to take jurisdiction over relationships that have a significant [link] to Canada,” he told Reuters.
Foreign gays who only came to Canada to marry and then returned to seek a divorce could have major problems if child custody was an issue, and there was little logic in asking Canadian courts to make decisions about children living elsewhere, he said.
“There are good reasons for Canada to be a marriage haven for same-sex couples. It’s not clear that it should be a divorce haven for same-sex couples,” Bala said.
(With additional reporting by Richard Woodbury in Halifax)
|Lunch with Bob Rae was one of the promises up for auction. (photo: Reuters/Blair Gable)|
Stobo Sniderman came up with the idea to auction off promises from friends who held a similar event at the University of Oxford. “I always thought it was fantastic because you get to build community and raise lots of money, and you get to sell things that you can’t normally buy,” he explains.
“It doesn’t have to cost anything at all, it’s not about buying something. It’s about sharing something that you know or sharing some talent that you have,” he adds. For example, some promises include homemade baked goods, handmade clothing, and various music lessons.
The 1L student has been following the FNCFCS’ case against the federal government, which was brought before the Canadian Human Rights Commission, accusing it of underfunding child welfare services for aboriginal children living on reserves.
“I wanted to raise awareness about it and support the litigation,” says Stobo Sniderman. And he wanted to raise awareness in a way that would be fun for law students, especially since they tend to be study-oriented and pretty stressed out most of the time, he says.
Following the success of this year’s auction, Stobo Sniderman is looking for a sponsor to make next year’s event even bigger.
Click here to see some of the other promises from the auction.
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Gail J. Cohen