The federal government is pledging to pursue tougher sentences for white-collar criminals, but it’s far from clear that promising more jail time is the way to redeem Canada’s reputation for being soft on fraud.

In mid-September, Justice Minis-ter Rob Nicholson announced that the federal government plans to unveil legislation later this autumn that will lead to longer sentences for those convicted of fraud and other white-collar crimes. This will include the introduction of a mandatory jail sentence for those convicted of serious frauds and add to the list of aggravating factors that judges can take into account to justify harsher punishments.

The idea that Canada is a soft touch when it comes to white-collar crime is not a new one. Canada’s securities regulators have long been criticized for their enforcement performance and, in recent years, the justice system has suffered its fair share of scorn as well. Most recently, a paper from the International Monetary Fundexamining the difficulty of securities enforcement singled out Canada as an example of a country whose regulatory reputation has been undermined by a lack of effective criminal enforcement.

Rehabilitating this reputation has proved exceedingly difficult. The creation of the RCMP’s integrated market enforcement teams in 2003 had signalled a serious commitment to get tougher on financial crimes, but their initial results were disappointing — although the units have since become more productive.

As well, a working group of securities regulators, police and justice officials had examined the issue of securities enforcement and provided recommendations to the federal and provincial justice ministers in late 2007, but these suggestions are reportedly still being worked on by officials at both levels.

This latest pledge to get tougher on white-collar crime with stricter sentencing is not the first time tougher penalties have been touted as the answer. The idea of securing suitable sentencing for fraudsters was one of the pillars upon which the RCMP’s IMETs initiative initially rested. Also, in 2004, the maximum prison terms for certain white-collar offences were raised, and sentencing guidelines were added to the Criminal Code requiring judges to consider aggravating factors and to ignore non-mitigating factors when handing down punishment for these offences, with the idea this would lead to more appropriate sentences.

When these previous reforms were introduced, it was expected that the result would be harsher punishments and a tough new image. For example, the maximum prison term for market manipulation was doubled to 10 years from five and a new “illegal insider trading” charge was introduced that carries a 10-year maximum term. Citing these changes, a report produced for a securities industry task force in 2006 (led by former Supreme Court Justice Peter Cory and former dean of Osgoode Hall Law School Marilyn Pilkington) observed that: “Significant steps have already been taken to address the challenge of appropriate sentences for capital markets crimes.”

Additionally, the report noted the new sentencing guidelines “will very likely counteract the assumptions that have resulted in inadequate sentences in some cases.”

But this clearly hasn’t worked as hoped, and the Canadian system’s reputation remains tarnished. And, as Nicholson observed when announcing this latest plan to push for stiffer sentences: “Canadians lose faith in the criminal justice system when they feel that the punishment does not fit the crime.”

Restoring faith in the system has proven particularly intractable when it comes to white-collar crime. The Cory/Pilkington report found that policy-makers and regulators at every level were demonstrating a willingness to improve enforcement, although the report concluded that there was much more to do. It made dozens of recommendations about strengthening the investigation, prosecution and adjudication of securities offences, and the need for investor restitution.

However, many of these issues remain outstanding. In addition to the promise of tougher sentences, the federal government now says that its planned legislation will also address the question of restitution. “Whenever possible,” says Christian Paradis, minister of public works and government services, “offenders should be held responsible for the often devastating financial loss that victims suffer, and should be made to provide restitution.”

Will this latest effort have greater success in getting tougher on fraud than past attempts? Long-time investor advocate Diane Urquhart is doubtful. While she lauds the tougher sentences — “It is a good first step for giving recognition to white-collar crime being as damaging to persons as violent crime,” she says — Urquhart cautions that “longer jail sentences will have no impact unless fraudsters are investigated and prosecuted, which means there must be structural change to how securities crime policing is done.

@page_break@“Financial crimes are rarely investigated by the police,” she adds, “police investigations are painfully slow; prosecutions take 10 or more years to complete; the financial fraudsters avoid jail or serve pathetically low sentences; and the victims of financial crime are left flailing in the wind without restitution of their life savings lost.”

The reason investigations often take a long time, and prosecutions are so protracted, is scarce resources, says Brian Awad, a former Crown attorney and litigation counsel with the Investment Dealers Association of Canada (now the Investment Industry Regulatory Organization of Canada). Awad is now a partner with Halifax-based law firm Burchell Hayman Parish.

He maintains that adequate resources for the investigation and prosecution of financial crimes is a bigger issue than sentencing practices: “A complex fraud file requires a large investment of ‘brain time’ up front in order for the case to be understood — what happened, whether any laws were broken and which ones — and then presented in a clear, fair and compelling manner. So, you need specialists. And you need them to stay with the file for a long period of time.”

Prosecutorial persistence is particularly important, Awad suggests, because cases in this area are always complex and each file is unique, so they can’t be easily handed off when key personnel change jobs: “If a lead investigator or prosecutor leaves, then a file will suffer a setback that is measured in months or years; and the public will see either no prosecution or a fumbled prosecution.”

The challenge of handling these complex cases has led to calls for special courts with expertise in these sorts of files. The task force report from 2006 recommended that judges be given special training in white-collar crime cases — and that special courts be created to handle capital markets offences.

Awad isn’t convinced special courts are necessary, but he does see the need for specialized investigators and prosecutors: “You can’t prepare these cases properly if you are also required to carry a regular caseload or do regular assignments.”

Quebec’s government is taking steps in this direction, promising to ramp up its efforts with the creation of a new team of 17 investigators from the Sûreté du Québec and prosecutors that will investigate all types of economic crimes in the province. The Sûreté is also setting up a team of investigators to work with prosecutors, in co-ordination with the Autorité des marchés financiers, to fight financial fraud.

Urquhart praises these moves and calls on the other provinces to follow suit: “We challenge every province and territory to dedicate proportionate funding for new financial fraud police.”

Additionally, she and several victims’ rights groups are advocating the creation of a new securities crime unit, which they conceive as a federal/provincial joint venture set up to receive complaints about securities crimes and to direct them to the appropriate police force.

The victims’ rights groups oppose a proposal, made as a result of a research study conducted on behalf of the expert panel on securities regulation chaired by Tom Hockin earlier this year, that calls for the creation of a new enforcement agency, either under a new single regulator — as recommended in the Hockin report and sought by the federal government — or within the current regulatory structure.

The recommended new agency would bring together the enforcement assets of the various securities commissions and the IMETs (which would be moved out from the RCMP to function as the criminal division of the new agency, responsible for the investigation and prosecution of criminal offences). Such a model, the research paper had argued, “would allow us to manage enforcement on a national basis more efficiently and more effectively.”

The Hockin report had noted that enforcement must be improved and recommended that its model be considered, but had avoided making specific recommendations about enforcement. The proposed single regulator is a work in progress, and it remains to be seen if this will also lead to changes to enforcement related to white-collar crime. IE