Canadian White Collar Crime: A Haven for Criminals like Conrad Black, John Felderhof & Garth Drabinksy

Canada has earned its reputation as a haven for white-collar criminals. A scattered provincially controlled regulatory system and weak enforcement paired with strong trust laws, a stable banking system, and strong privacy legislation lead to a financial sector that is easy to manipulate. Organizations including the Canadian Union of Public Employees (CUPE) and the International Monetary Fund have made statements criticizing this fallibility; while public officials like Jim Flaherty, who work to improve the problem, still encounter significant resistance from within. In contrast to its neighbor, the United States, the statistics show a significantly lower rate of convictions, weaker penalties and procedural efficiency in comparable white-collar crime cases. The failure of a long five-year case against Bre-X's chief geologist, John Felderhof ending in 2007 is one such example of an inability to successfully prosecute criminals.

The United States has proven its legal system more equipped to deal with white-collar crime, which consists of the following offences: embezzlement, bribery, tax evasion, fraud, insider trading, money laundering, misrepresentation, conspiracy, obstruction of justice, and racketeering (Chiste, 2008). Black's Law Dictionary defines white-collar crime as "a non-violent crime usually involving cheating or dishonesty in commercial matters." (Black's, 2004). Canada's relative leniency in these types of crimes may be partly explained by the description 'non-violent', from which many might infer that they are less damaging crimes, but it is important for Canadians to recognize that the current systems in place are inefficient in effectively dealing with and then deterring white-collar criminals. One important case in evaluating Canada's ability to prosecute white-collar criminals is R. v. Drabinsky in 2009. Garth Drabinsky, the founder of Livent, was convicted in March of fraud and forgery, alongside his co-defendant Myron Gottlieb, and sentenced to seven years in prison (R. v. Drabinsky, 2009). This sentence comes over ten years after the crimes were committed, demonstrating an extraordinarily slow process from the initial RCMP investigation to the legal prosecution and conviction (Skurka, 2009). The same pair was also charged with sixteen counts of conspiracy and securities fraud by an American Federal Grand Jury, but was tried in Canada instead, refusing to surrender to U.S. authorities (Skurka, 2009). They will serve out one sixth of their sentence before being let out on parole. Compare this to the trial of Conrad Black in the United States, which took one year instead of ten to move from indictment to trial, had no preliminary trial; resulting in a much swifter sentence of six and a half years, of which he will serve eighty five percent before being eligible for parole; unlike Canada's much shorter period. Similarly, Conrad Black attempted to flee to Canada much like Drabinsky did, but was unsuccessfully in his reapplication for Canadian citizenship (Bower, 2006). This comparison demonstrates the inefficiency of Canada's system when dealing with white-collar criminals in comparison to that of the United States, as well as showing that these criminals are aware of the difference, and attempt to take advantage of it.

Another example is the case of the mining company Bre-X and the acquittal of John Felderhof. An estimated six billion was lost by investors due to the false claim of substantial gold findings in Indonesia, while Felderhof sold $84 million of Bre-X stock in 1996 before the price plummeted (R. v. Felderhof, 2007). This case took six years to find that there was not enough evidence to suggest that Felderhof had any knowledge of the falsified gold claims at the time they were made, or at the time he sold his stock (R. v. Felderhof, 2007). In conclusion, no criminal charges could be laid successfully against anyone despite the fraud that caused substantial loss to so may investors.

The Canadian Union of Public Employees (CUPE) has noted that over the previous five years, the United States has had one thousand-two hundred white-collar criminal convictions, whereas in Canada there have been only three such convictions in the same period of time, two of which have been against the same individual (CUPE, 2008). They are not alone in this criticism: The International Monetary Fund, after an evaluation of Canada's regulatory system, found that both the provincial regulatory system and criminal enforcement were particularly weak (Langton, 2008). The IMF has called for improvements in both areas, specifically by adoption of a single regulator, and co-ordination between criminal and securities law enforcement (Langton, 2008). It does, however acknowledge that Canada is taking steps for improvement with the creation of the umbrella group for provincial regulators, the Canadian Securities Administrators (CSA), though it is only the first step of many (Langton, 2008). Another group, the National Pensioners and Senior Citizens Federation, also expressed serious concern in the matter due to the "disproportionately affected seniors" (Hutchinson, 2007, p. 1) who have been victimized by many white-collar criminals. They cited the trend of misleading predicted returns made for income trusts used to entice senior citizens to invest retirement funds resulting in heavy losses as evidence to this problem (Hutchinson, 2007). Canada's weak regulation and enforcement has become internationally recognized, which could cause doubt on many potential investors both in Canada and out.

This mounting evidence against Canada's ability to properly regulate its financial and corporate sectors has finally provoked change by way of Canada's finance minister, Jim Flaherty. For years he has been one of the biggest proponents against Canada's current regulatory system. In 2007, Flaherty expressed his opinion at the University of Toronto with a sharp criticism: "There is a perception that Canada's system is not performing as it should, that too many breaches of rules are not being prosecuted in Canada." (Campbell 2008) He has continued to move forward with this idea - his "own personal crusade", as Campbell described it (Campbell 2008). There has been formidable opposition from many of the provinces, who argue that their current system works or should at least stay provincially regulated (Mayeda, 2009). Donne Smith, chairman of the New Brunswick Securities Commission stated in defense that "We know the geography, we know the people and the challenges of entrepreneurs and businesses here." (Campbell, 2008). Those opposed to Flaherty's move say it goes against their interests and violates the Canadian Constitution (Shalom, 2009). More recently though, Flaherty has appointed a panel of provincial representatives to develop a Federal Securities Act charged with outlining the prospective regulator's powers (Mayeda, 2009). Three provinces still resist and have refused to provide representatives to the panel: Quebec, Manitoba, and Alberta (Mayeda, 2009). All three may be considering legal action in their resistance, but so far only Quebec has taken action on it (Shalom, 2009). Flaherty has pushed ahead though despite threats of appeal, and made the panel an "opt-in" system to avoid forcing the unwilling provinces to do anything (Shalom, 2009). It remains to be seen if the steps Canada is trying to take will be successful in improving regulation.

Problems do not only exist in the area of regulation. They also create barriers in areas of enforcement where laws restrict the extent of evidence that can be obtained, and the severity of sentencing. Firstly, Canadian law enforcement is limited in their ability to obtain sworn testimony from witnesses. Under the Mutual Legal Assistance Treaty (MLAT), United States officials can force Canadian citizens to give sworn testimony, but RCMP do not have such power even over their own citizens (Gray, 2007). In fact, John Sliter, head of the RCMP's securities crime branch, noted, "Canada is one of the few Western countries where police cannot compel potential witnesses to testify in white-collar crime cases." (Hutchinson, 2007, ¶ 20) Canadian police can also be compelled to disclose all investigation information if they are shown to be involved in an international investigation, something that makes investigators from other jurisdictions more reluctant to work with them (Gray, 2007). Even without international ties, a Supreme Court Ruling in 1991 requires the Crown to disclose all evidence to the defendant to give them opportunity to create a proper defense (R. v. Stinchcombe, 1991), which may dissuade informants from coming forward for lack of privacy protection. Another precedent set by the Surprise Court is that any evidence obtained without a search warrant renders that evidence inadmissible in court (R. v. Duarte, 1990), which can frustrate an investigation. Secondly, even if a conviction is made, the lack of strong sentencing can become another obstacle. There are currently no mandatory jail sentences for criminals convicted of white-collar crimes, and the maximum sentence is fourteen years (CBJ, 2009). The convicted can be eligible for parole as early as one sixth of that time period, and it is often served in much higher quality facilities than other criminals. When compared with the United State's conviction of Bernard Madoff for 150 years in prison (Teather, 2009), and the strict probation eligibility as seen in the case of Conrad Black where minimum eighty five percent of his sentence must be up before parole, Canada appears much softer on this type of crime. Like Flaherty in regulation, Justice Minister Rob Nicholson is also taking steps to improve this sector by "introducing tougher legislation aimed at white-collar crime, such as mandatory jail sentences for criminals convicted of serious fraud, longer sentences and possible restitution orders for victims." (CBJ, 2009).

The United States has significantly outdistanced Canada in its regulation of white-collar crime with more than one thousand-two-hundred such convictions compared to Canada's three in the same period, and its more efficient laws with regard to witness testimony, evidence, and sentencing. Canada has taken the first steps towards improving its system with Flaherty's attempt to create a single regulatory system, and Nicholson's proposed legislation, which should start to respond to the international scrutiny and criticism from the CUPE, IMF and other organizations. It remains to be seen if Canada can shake its reputation as a haven for white-collar criminals, demonstrated by the preference of convicted felons like Drabinsky or Black to be tried in Canadian Courts instead of in those of another country like the United States.

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