CANADA SEES NEED TO STRENGTHEN MEASURES AGAINST SECURITIES

UNCLAS SECTION 01 OF 02 OTTAWA 002241

SIPDIS

DEPT FOR WHA/CAN AND INR

USDOC FOR 4310/MAC/ONA

TREASURY FOR IMI (FAIBISHENKO)

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN KCRM CA
SUBJECT: CANADA SEES NEED TO STRENGTHEN MEASURES AGAINST SECURITIES
FRAUD

REF: (A) Toronto 372 (B) Toronto 375 (C) Toronto 160

Sensitive but Unclassified - protect accordingly.


1. (SBU) SUMMARY: A recent report commissioned by Canada's federal
police force (Royal Canadian Mounted Police, or RCMP),and written
by former GOC senior financial official and bank regulator Nicholas
LePan, criticized the institutions and resources available for
fighting white-collar crime in Canada. The report notes that
creating a single Canadian securities regulator could facilitate the
prosecution of securities offenses, and GOC Finance Minister Jim
Flaherty is seizing on this rationale to support his push for a
single regulator. The Ontario Securities Commission (OSC),widely
criticized for its inability to try and convict white collar
criminals in securities fraud cases, supports the LePan report
findings. End Summary.


2. (SBU) BACKGROUND: A number of financial events over the past
decade in Canada have contributed to a perception that this
country's measures to control white-collar crime may be inadequate.
Key events include the notorious Bre-X mining promotion scandal of
the 1990s (the only person brought to trial was acquitted),the
recent successful prosecution of former Canadian financier Conrad
Black in Chicago (observers opine that Black's case might never even
have gone to prosecution in Canada),and Canadian firms' struggle to
comply with the United States' Sarbanes-Oxley law on financial
accountability because of the resources required for compliance, and
Canadian companies' relatively small size compared to their U.S.
counterparts.


3. (SBU) The GOC created Integrated Market Enforcement Teams (IMETs)
in 2003 to increase enforcement, but there have been few visible
results. Since coming to office in early 2006, Canada's
Conservative Party government has promoted "accountability" and law
enforcement as key themes of its policy agenda. In February 2007,
the government announced expanded resources for IMETs, and also
appointed Nicholas Le Pan, a former Superintendent of Financial
Institutions (federal bank regulator) and former senior official in
the Department of Finance, to develop a plan to increase the teams'
effectiveness. End background.


4. (U) LE PAN REPORT: Le Pan's report was made public on December 3
and is available on the internet at
http://www.rcmp-grc.gc.ca/imets/report_lepan2 007_e.htm . Following
are selected key points made by the author:

-- "IMETs can improve within the current legal framework."
-- "In contrast to the U.S., Canadian legal tradition does not
permit prosecutors to be in charge of investigations or participate
in them on a day-to-day basis. "
-- "There appear to be resource challenges in some jurisdictions
that can slow down getting to charges and having appropriate
prosecution teams in place."
-- "Those being investigated or charged will understandably bring
substantial high-quality resources to bear to defend themselves.
The Program is 'playing in the big leagues' and needs to act that
way."
-- "Expectations of U.S.-style results are unrealistic, given
Canada's different legal environment. For example, our lack of
ability to compel those not being investigated to provide
information, documents and data pre-trial, hampers investigations
compared to the U.S. or UK. Also, as an example, charging people
in stages in a major investigation, as is done in the U.S., is not
feasible in Canada due to rules on full disclosure of the Crown's
Qfeasible in Canada due to rules on full disclosure of the Crown's
case to accused."


5. (SBU) SINGLE SECURITIES REGULATOR: Canada is unusual among
developed countries in placing jurisdiction over securities markets
at the sub-federal (provincial) level (reftels). There are
continuing efforts to promote a "common" or "single" regulator,
based on various models, with varying degrees of resistance from
provincial and territorial governments (Ontario, whose securities
commission already regulates the vast majority of the market, being
the most interested, and Quebec and Alberta being opposed). GOC
Finance Minister Jim Flaherty has advocated a single regulator, but
the GOC has very few means at its disposal to persuade the provinces
- whose leaders are often touchy about federal encroachment - to
loosen their grip.


6. (U) Le Pan touched on this sensitive issue with the following
comment:

"The existence of multiple securities regulators in Canada can make

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achieving consensus on issues difficult and time consuming. For
example, it took considerable time to sort out the approach to
sharing of information between regulators and the police in Canada
and between Canadian authorities and their international partners.
It is not fully resolved. Canada did not have a uniform position
vis-a-vis its international partners. Different provincial
regulators have different interpretations of court decisions which
have hampered setting up joint securities intelligence units with
the RCMP in some provinces."


7. (SBU) FLAHERTY PICKS UP THE LAW ENFORCEMENT THEME: Appearing
before the Senate Banking Committee on December 5, Finance Minister
Flaherty seized on Le Pan's report to support his arguments for a
single or "common" securities regulator. He made several points:

-- Discussions have been moving forward based on a model proposed
recently by an eminent persons committee.

-- What's proposed is not a federal regulator, but a common Canadian
regulator.

-- While regional opponents often express concern that Ontario
and/or Toronto want to dominate them, this model need not be
Ontario-oriented or Toronto-oriented. In reality, the status quo is
about 85 percent based in Toronto, so regional opponents should
remain open-minded about how reform could distribute power
differently.

-- Other countries are interested in considering mutual recognition
arrangements in this sector (Flaherty cited the USA, Australia and
New Zealand),but mutual recognition cannot advance until Canada has
a single, common securities market regulator.


8. (SBU) ONTARIO SECURITIES COMMISSION (OSC): The OSC, which has
been criticized for its inability to try and convict white collar
criminals in securities fraud cases, supports LePan's findings.
Along with Minister Flaherty, the OSC has been calling for
establishment of a common Canadian securities regulator (ref A),in
large part to improve securities law enforcement in Canada. An
interprovincial law enforcement taskforce, the Securities Fraud
Enforcement Working Group, led by OSC Chairman and CEO David Wilson,
and Quebec Justice officials, with RCMP participation, is working to
beef up securities law enforcement across Canada, and to address
criticism of Canada's inability to successfully prosecute insider
trading cases (ref B).


9. (SBU) SECURITIES FRAUD ENFORCEMENT WORKING GROUP: In November,
this working group presented its finding to the federal, provincial
and territorial justice ministers in Winnipeg. "What we say ... to
the ministers is, the system is working," Wilson said in advance of
the report's submission. "Can it be better? Yes. Should we try to
make it better? Yes. That's the reality as we see it." The next
step is analysis of the recommendations and their implementation.
The group's key recommendation to improve securities law enforcement
across Canada is "to improve cooperation, coordination and
consistency across jurisdictions," said Wilson at the Dialogue with
the OSC 2007 on November 27 in Toronto. Wilson also highlighted a
Canada-wide shortage of skilled prosecutors whose focus is on white
collar crime, and Canada's complex legal framework that tends to
constrain information-sharing -- issues that were raised in the Le
Pan report.

WILKINS