New approach needed to fight securities fraud: Le Pan

Canadian Press

December 3, 2007 at 2:28 PM EST

OTTAWA Canada has to rethink its approach to investigating and prosecuting securities fraud or continue to be outwitted by the smartest and best equipped white collar criminals in the country, says a new report.

The long-awaited report by former financial institutions superintendent Nick Le Pan is critical of the way the RCMP has overseen the creation of the Integrated Market Enforcement Teams (IMET) four years ago at the cost of $30-million a year.

The teams were meant to improve the investigation and prosecution of major securities fraud after a series of scandals, beginning with the Bre-X gold swindle a decade ago that cost investors billions of dollars and shook Canada's financial markets.

But Mr. Le Pan, whose appointment was part of Finance Minister Jim Flaherty's spring budget announcement of additional funding for IMET, found the teams have yielded disappointing results and are unlikely to be more successful unless changes are made.

A new report Monday called for a wholesale makeover of the way the RCMP investigates major crimes in Canada's capital markets, saying the current system is inadequate to catch big white-collar criminals. (Reuters)

The Globe and Mail RCMP document: The Le Pan IMET report

The program is playing in the big leagues' and needs to act that way, the report states.

The IMET program is operating in a very challenging environment that it needs to be better equipped to succeed in ... Those being investigated or charged will understandably bring substantial high-quality resources to bear to defend themselves.

Mr. Le Pan said the teams are under-staffed, poorly supervised and beset with a high vacancy rate and turnover of key staff.

Some of the problems are systemic, said Mr. Le Pan, but he blamed many on the way the RCMP has implemented the program and the low priority given to white collar crime by the national police force and the federal Public Prosecution Service of Canada.

Legitimate criticisms centre on the lack of results and questioning whether the program and its partners have the sense of urgency needed to succeed, the report says.

Nor has IMET demonstrated the leadership, tone from the top, results focus, nimbleness or consistent cohesion of action or communication among the players.

After the collapse of U.S. energy trader Enron Corp. about five years ago in one the biggest white collar crimes in U.S. history, U.S. enforcement officials have prosecuted, fined and jailed many senior executives for corporate wrongdoing. As well, new laws have required more rigorous corporate financial reporting, while the national stocks regulator, the U.S. Securities and Exchange Commission, has toughened its regulation and enforcement actions.

For example, the U.S. justice system led the prosecution of former Canadian media mogul Conrad Black, who was convicted of fraud and obstruction of justice and awaits sentencing next week in a Chicago court. Canadian regulators also investigated Lord Black but awaited the result of his U.S. trial before deciding what to do next.

Critics of the Canadian system note that it would be easier to police white collar crime in this country if the 10 provincial securities regulators were merged into one national body, with SEC-type powers and resources to crack down on insider trader and corporate fraud.

The Le Pan report, which was issued to the RCMP on Oct. 25 but made public Monday, makes a number of recommendations, including more resources, better leadership, having a more senior officials oversee investigations, and placing more importance both in investigating and prosecuting white collar criminals.

The report's release Monday was accompanied by a statement from RCMP Commissioner William Elliott, who says the police force has already started to implement the recommendations.

Mr. Le Pan cautions that even if all the changes are implemented, catching white collar crime in Canada will continue to be more difficult than in countries such as the U.S. and Britain.

One hurdle police and prosecutors face is that unlike many industrialized countries, Canada lacks a national securities regulator, an issue that Mr. Flaherty has urged provinces to address.

The existence of multiple securities regulators in Canada can make achieving consensus on issues difficult and time consuming, Mr. Le Pan writes. ?Different provincial regulators have different interpretations of court decisions which has hampered setting up joint securities intelligence units with the RCMP in some provinces.

Another is with Canada's legal system, which lacks the teeth to compel those not being investigated to turn over data and documents that would help the police, or does not allow charging people in stages due to full disclosure rules.

As well, Canada's legal system does not allow prosecutors to take charge of investigations, as is the case in the U.S.

Given these limitations, Mr. Le Pan says it is unrealistic to expect U.S.-style results on securities fraud in Canada.

Under-promising and over-achieving should become the watchwords for IMET, not the other way around, the report says.

Mr. Le Pan says initially, the IMETs should focus on smaller, less complex investigations to get some taste for success.

Having success in smaller cases adds to credibility of the IMETs and to credibility of capital markets enforcement.