If you want to deter fraud, you can threaten harsher punishment or try to increase the likelihood of catching offenders. In pursuit of the former, Canada’s federal government is moving to beef up penalties for white-collar crime. The other part of the equation — catching offenders — is likely to be a more difficult task.

Although governments are looking to the quick fix of tougher sentences for white-collar offenses, many feel that a bigger problem is the time it takes to process securities enforcement cases (both criminal and regulatory). These sorts of investigations and prosecutions are very time-, resource- and labour-intensive. As a result, relatively few cases can be processed — meaning that there is little deterrent for potential offenders, and scarce justice for victims.

The obvious answer to this problem is to throw more resources at it. But a recent financial services industry conference hosted by the Ontario Securities Commission attempted to dig a little deeper than that for other, more practical ways to improve both criminal and regulatory enforcement in Canada. That conference resulted in calls for, among other recommendations, greater investigative powers, better co-operation among agencies and judicial reform.

One of the biggest complaints with current enforcement performance is the time it takes for the process to move from detection to conviction. At the conference, Stephen White, chief superintendent and director general, financial crime, with the Royal Canadian Mounted Police, attempted to spell out just how costly and time-consuming these cases can be to investigate: one recent investigation took four years to complete, consumed 50,000 man-hours and racked up $1.6 million in forensic accounting costs; another case took up 70,000 hours and cost more than $2 million in accounting expenses.

Along the way, these types of investigations generate endless documents — 20 million, in one case — that have to be scanned, archived and disclosed to the defence.

That many of these cases are so lengthy, complex and costly represents a significant handicap to police, according to White. The police need greater investigative powers, he says — in particular, the ability to compel testimony from third-party witnesses — and improved information-sharing with other authorities. Although securities regulators can compel witness testimony, they cannot then share it with the police; foreign investigators can seek orders to compel witnesses in Canada to give evidence.

Without these sorts of evidence-gathering powers, and absent voluntary co-operation from witnesses, White says, police have to resort to other, more labour-intensive ways of building their cases, which adds to the problems in completing these investigations.

If the police had the power to compel testimony, White suggests, it would neutralize some of the common reasons that people cite for refusing to give evidence — such as fear of a civil suit and the prospect of damaging their reputation or losing a job — if they are tainted by association with a criminal investigation. If the police could require people to give evidence, he adds, there would be no stigma because potential witnesses would have no choice but to comply.

White points to the grand-jury system in the U.S. and the Serious Fraud Office in Britain — both of which have these powers — as examples of the mechanisms that can be established to speed investigations without stepping too heavily on civil rights.

That said, the suggestion that the police in Canada should have greater investigative powers has been thrown around for several years now, and legislators have so far been reluctant to take that step. Indeed, at the OSC conference, Murray Segal, deputy attorney general for Ontario, noted that there are serious impediments to expanding the evidence-gathering power of police. One is a lack of political will to make such a change; another is the possibility that doing so might not survive a challenge under the Charter of Rights and Freedoms.

Additionally, the OSC conference’s moderator, Patrick LeSage, former chief justice of the Ontario Superior Court of Justice and now an OSC commissioner, has “reservations” about giving the police the ability to compel testimony. He concedes that the fact that foreign authorities can get an order compelling testimony while the domestic police cannot is a “bizarre” situation.

Absent these sorts of expanded police powers, Segal says, he would like to see the creation of a simple protocol to govern information-sharing among regulators and the justice system that sets out rules that would streamline the process rather than create a series of arrangements tailored for each police officer and each Crown attorney.

@page_break@Tom Atkinson, director of enforcement at the OSC, suggests enhancing co-operation among agencies, including setting common priorities and deploying resources together to tackle a particular problem. “We have very good communication among the agencies, and we support each other,” Atkinson says. “But we never say, ‘Let’s eradicate boiler rooms this year.’ I’d really like to see us do more targeted, strategic problem-solving.”

In addition, Atkinson suggests, regulatory investigations could be speeded up if industry players were faster at coming up with documents when his staff requests them. “It’s amazing to me when you see [dealers’] trading technology,” he says. “Their trading has gone into the milliseconds, and they’re so quick you can’t even monitor them with the human eye. But if you ask them for a banking record, it’s a four-month delay, minimum, for any record.

“If it takes four months on relatively simple matters,” he continues, “you’re going to have years-long investigations on very straightforward matters.”

Dealers should be able to produce these records more quickly, Atkinson suggests, and be held accountable.

Moreover, as the RCMP’s White had proposed at the conference, the documentary bur-den in these cases could be eased by reconsidering the thresholds for relevant disclosure — in the hopes of both raising that bar and possibly reducing the volume of disclosure.

Although there’s room for improvement on the investigation side, the adjudication of securities cases must get better, too. At various times, it has been suggested that one way to expedite complex fraud trials would be to create a special court, staffed with specially trained judges who would have the expertise to move these types of cases along more quickly.

This idea was generally dismissed as impractical by the conference panel, however. Joel Wiesenfeld, partner with Torys LLP in Toronto, notes that in an ideal world, such a court could be created. But a more practical way to create more judicial expertise, he says, is simply to bring more cases to court, either by securities regulators or Crown prosecutors. He points out that when judges face a greater volume of cases in a particular area, they tend to educate themselves to deal better with the specific issues those cases present.

This stance is echoed by Segal, who suggests that it’s rare for a case to fail because of a lack of judicial expertise. He proposes that there could be an effort through bodies such as the National Judicial Institute (an independent educational organization), in co-operation with the financial services industry, to help better educate judges about complex securities fraud issues.

Indeed, former chief justice LeSage also puts the responsibility for speeding up the trial process on the judges themselves. He says that they have been far too passive, and that they should take greater control of their trials, pushing them to resolution more quickly.

“A lot of the procedures and the pretrial motions are usually laid at the foot of the charter, and I think that’s only a small part of it,” LeSage says. “I think it’s a passiveness on the part of too many of those who are on the bench. Judges have to become far more assertive and far more hands-on in controlling cases in their courts. I believe they can do that — and they should do it.”

In terms of regulatory enforcement cases, Wiesenfeld says, one of the big factors hanging over proceedings is the threat of civil liability — in particular, class-action lawsuits. The prospect of such suits looms over regulatory cases even though the majority of those cases are settled. Yet, in order for one of these cases to be settled, the accused must admit to some regulatory liability. “Everybody, in negotiating a settlement agreement,” Wiesenfeld says, “is looking over their shoulder at the elephant in the room, which is potential class-action liability.”

These days, he adds, as soon as word of a regulatory action is revealed, lawsuits are being filed. The result, he argues, is that such a preoccupation with the possibility of inviting civil liability in settlement talks often conflicts with what the regulators are trying to achieve in terms of deterring violations.

One solution, Wiesenfeld says, would be to allow no-contest settlements: “That would be far more effective, and have the same result for regulators.”

None of these ideas is a silver bullet. And every new power that the enforcers would like to have would face opposition from the financial services industry and their lawyers. The fight isn’t hopeless; but the reality is that securities enforcement is always likely to be a tough slog, both for regulators and the criminal justice system. IE