This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 OTTAWA 003765 
 
SIPDIS 
 
NOFORN 
 
DEPARTMENT FOR EB/IFD/OMA, AND WHA/CAN 
 
E.O. 12958: DECL: 01/07/2015 
TAGS: EFIN ECON PREL CA SIPDIS
SUBJECT: OPPOSITION PARTIES SEIZE ON RCMP INVESTIGATION OF 
POSSIBLE LEAK FROM DEPARTMENT OF FINANCE 
 
REF: 04 OTTAWA 2822 (IMETS) 
 
Classified By: Classified by Curtis Stone, Acting Economics Minister Co 
unselor, Ottawa.  Reason:  1.4(b) and (d). 
 
¶1.  (U) Summary:  Opposition parties have seized on 
confirmation of an RCMP criminal investigation into the 
possible leak of tax information from the Department of 
Finance, calling for Finance Minister Ralph Goodale to 
resign.  Goodale, reiterating his confidence that he, his 
political staff, and officials at the Finance Department will 
be cleared, has said he does not intend to step aside.  The 
story led the national news and was carried in front, not 
business, sections of the newspapers but it is too early to 
tell if this will affect the outcome of the January 23 
election.  End summary. 
 
 ¶2.  (U) In a letter to NDP Finance Critic Judy 
Wasylycia-Leis, Commissioner Giuliano Zaccardelli confirmed 
that the Royal Canadian Mounted Police (RCMP) will 
investigate "a possible breach of security or illegal 
transfer of information in advance of the federal 
government's announcement of changes to the taxation of 
Canadian corporate dividends and income trusts Nov. 23, 
2005."  He added that there is no evidence of wrongdoing by 
anyone including Mr. Goodale. 
 
What happened? 
-------------- 
 
¶3.  (U) The investigation arose from a request by 
Wasylycia-Leis, who was concerned about a surge in trading in 
the hours before Minister Goodale announced his new policy. 
On November 23, after markets closed, Minister Goodale 
announced that he had decided not to tax investment trusts 
but would cut taxes on corporate dividends to reduce the 
advantage that income trusts had enjoyed in the market.  The 
GOC has long expressed concern about the surge in the 
tax-advantaged income trusts and was widely expected to 
increase taxes on those instruments. 
 
¶4.  (U)  Goodale's  announcement was preceded by unusually 
heavy trading and sharp increases in the price of financial 
instruments that would benefit from the new policy.  A 
forensic accountant who examined the trading records told the 
press that he would guess "there was an over 90 per cent 
probability of insider trading" and that the case requires an 
investigation.  Canada's Association for the Fifty-Plus 
(CARP) has vigorously denied a TV report that it received a 
call on November 23 from the Liberals reporting that 
something was going to be said (about income trusts). 
 
Campaign Windfall for the Opposition 
------------------------------------ 
 
¶5.  (U) Wasylyscia-Leis has asked that Goodale step aside as 
Finance Minister and the Conservative party is also calling 
for Goodale's resignation.  When allegations of a leak first 
arose, Minister Goodale stated that he was confident that 
neither Finance officials nor his ministerial staff leaked 
the information.  He confirmed December 28 that "I have 
looked at this situation very carefully and I am absolutely 
confident about my conduct in this matter and I do not see 
any basis on which to resign."  With over three weeks to go 
in a hard-fought election campaign, the Minister is not in 
Ottawa these days, or involved in policy decisions at 
Finance. 
 
What next? 
---------- 
 
¶6.  (U) Commissioner Zaccardelli has confirmed that the RCMP 
is investigating the possible leak.  This type of 
investigation is likely to be handled by the Commercial 
Crimes section rather than the Integrated Market Enforcement 
Teams (reftel), although they might call on the IMET for 
expertise. 
 
¶7.  (U) Market Regulatory Service (MRS) is the regulatory 
body with jurisdiction in this case.  MRS was created when 
the Toronto Stock Exchange was privatized and has 
responsibility for monitoring the markets.  Self regulatory 
organizations such as the Investment Dealers Association 
would not be likely have a role in the investigation. 
 
¶8.  (C/Noforn) The Ontario Securities Commission (OSC) has 
not said publicly whether it is investigating the complaint 
(although it was requested to do so by the Conservative 
party), but the OSC manager of Surveillance Enforcement 
(please protect) told us this is not an insider trading case 
as the Minister, and Finance officials, do not have a 
"special relationship" with the traders.  Although he was 
reluctant to discuss the case, he said the OSC could take 
action on public interest grounds "if it (the leak) happened" 
but would need to establish a profit motive (presumably by 
the leaker).  He confirmed that Federal officials are not 
"issuers" subject to OSC regulation.  Comment:  The OSC would 
clearly like to steer clear of this controversy. End comment. 
 
¶9.  (C) At the Department of Finance, the issue of taxation 
of dividends and income trusts was handled by officials in 
the Financial Sector Branch, the Tax Branch, and of course by 
the Minister's staff and the communications office.  A 
high-level public servant at Finance said the investigation 
has not had an impact on his staff yet, although he expects 
"the RCMP will be around to talk to us."  He is confident 
that, if there was a leak, it was not from bureaucrats at 
Finance.  "I know the people here and know how they handle 
things, and we handle much more sensitive things routinely" 
(without leaks). 
 
¶10.  (C/Noforn) Comment:  This investigation joins the 
Dingwall affair and the sponsorship scandal in cementing the 
image of Liberal Party entitlement and corruption, although 
the Opposition may be jumping a bit prematurely as the 
investigation is still in a very early stage.  (Conservative 
Party Leader Steven Harper, contradicting his party's 
official press release, said at a press conference today that 
he personally hopes Goodale doesn't resign, but continues to 
campaign as a symbol of Liberal corruption.)  While the 
impact on voters is not clear, the investigation's timing, 
following recent embarrassing gaffes by Liberal staffers, is 
just one more negative for a party trying to dig out from 
under the perception of corruption revealed by the 
sponsorship scandal. 
 
¶11.  (C/Noforn) Comment continued:  Whether or not there was 
wrongdoing involved, the politically inept handling of the 
issue of taxing income trusts in one in a series of decisions 
on which the Liberal party has stumbled.  There had been 
criticism that the popularity of income trusts reflected the 
need to revamp the entire corporate tax system rather than 
focusing on penalizing one product.  The November 23 decision 
was preceded by what one columnist described as the Liberals 
"sending mixed signals, dithering, contradicting themselves." 
 The long-delayed clarification on bank mergers is another 
example of a decision that has significant financial sector 
ramifications but successive governments have chosen inaction 
and ambiguity over clear policy making. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
WILKINS