VZCZCXRO8972
RR RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #2241/01 3451549
ZNR UUUUU ZZH
R 111549Z DEC 07
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 7014
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

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 
 
OTTAWA 00002241  002 OF 002 
 
 
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