who are invested with so much power obviously increases the risk of insider trading, influence peddling, corruption, incestuous relationships, and simple back-scratching.
The fact that Canadian financial markets are known throughout the world for their permissiveness makes it even more difficult to believe that these regulations and methods, already inherently deficient, could ever be strictly enforced. Despite its democratic pretensions, Canada has acted to concentrate on its territory all the mechanisms for surveillance of its largest financial and industrial players, not to regulate them in accordance with the rule of law, but to provide them, in the manner of a tax haven, with a political, financial, and legal environment that is as unconstricting and as apathetic as possible. This was one of the main arguments put forward in Noir Canada.20 The TSX, Queen’s Park, and Ottawa, by failing strictly to supervise investors and Canadian-registered companies, have actively contributed to creating for them a space in which everything is possible. The consequences of this generosity are felt even at the international level.
William J. McNally and Brian F. Smith, economists at Ontario’s Wilfrid Laurier University, have shown how badly the Toronto Stock Exchange, and the Ontario Securities Commission (OSC) that supposedly supervises it, apply existing regulations that govern release of information in cases of insider trading. Unlike what is common practice in the United States, many cases are never even investigated. One in eight transactions are said to involve TSX companies buying up their own shares. The OSC budget does not allow consistent monitoring, and incredible as it may seem, the data available to it on a daily basis are less precise and less complete than the monthly data published by the TSX itself. The lack of monitoring is extraordinary, and the weakness of Toronto regulations has raised the hackles even of seasoned investors such as Claude Lamoureux, who denounced their laxness when he was president of Teachers, the powerful pension fund for Ontario public school teachers.21 For people in the know, insider trading in Toronto is child’s play; meanwhile, the general public, lacking information, is in constant danger of losing its shirt. In the rare instances when the guilty are arrested, the sanctions imposed are sometimes less than the profit made on the illegal trade. “Almost half of the purchasing firms fail to report their trades to the OSC.”22
In the United States, following a number of major corporate scandals, including cases such as Enron and WorldCom, in 2002 Washington enacted a bill known as the Sarbanes-Oxley Act on “public company accounting reform and investor protection.” Section 404 of Sarbanes-Oxley requires corporations to exercise internal control over financial reporting in compliance with a control framework established by a normalization agency.23 The adoption of these stricter rules in the United States led Canada to enact what have proven to be only superficial changes to its model of a self-regulating financial sector. In Canada, the permissive approach to which the government had reiterated its commitment in 1994 based on the Dey report24 still prevails. Canada’s utopian idea is that the market will induce brokers and share-issuing companies to behave themselves in order to make their shares credible. “Market and social pressures are supposed to lead companies to adopt governance standards that will contribute to maximizing value,” explains Université de Montréal law professor Stéphane Rousseau.25 Yet Canada has refused to adopt regulations inspired by Section 404 of the American law, a section that is described as “controversial because of the costs it entails.”26 Thus the proposed Canadian regulation on internal control over financial reporting, which dealt with the same issues, did not include a similar constraint.27 Introduced in February 2004 in all jurisdictions except British Columbia, the proposed regulation was withdrawn in March 2006 when Canadian Securities Administrators determined not to proceed with proposed changes.28 Instead, a complementary regulation on corporate governance guidelines establishes a distinction between mandatory disclosures and other voluntary, completely optional disclosures. These optional disclosures are in fact a catalogue of good intentions; for example, the members of a company’s board of administrators ought to be “independent” and should satisfy itself “as to the integrity of the chief executive officer (the CEO) and other executive officers and that the CEO and other executive officers create a culture of integrity throughout the organization.”29
Well-versed in the art of using euphemisms, Rousseau refers to the intention “to regulate governance in a level-headed manner.”30 Under Canadian law, the only restriction is that the corporation is required to ask an audit committee, consisting of three independent administrators, to examine the links between internal and external auditors and to oversee the work of the external auditors. This committee also participates in the process of disclosing information based on the company’s financial statements. In other words, in the absence of a normative framework, the credibility of the financial world rests once again on the degree to which it trusts itself, since only the social agents belonging to the brotherhood of finance are given the right to assess the real independence of actors whose behaviour is dictated by the logic of the marketplace. As ever, the legal basis of the Canadian economy is dictated by the interests of powerful shareholders, rather than those of employees, partners, or communities affected by the economy’s operation. “In Canadian law, the theory of shareholders’ primacy has imposed itself, both in case-law and as a doctrine, as the dominant conception of society’s interest.”31 Finance makes law. The late Raymond Favreau, who served as attorney and scientific adviser for ATTAC-Québec (an association to promote taxation of international financial transactions), pointed out that Canadian judicial authorities have shown surprising complacency with respect to economic crimes. Recent examples are those of Paul Eustace, manager of Portus Alternative Management, or of the Norshield Financial Group.32 Favreau extensively researched the loopholes that make the Toronto exchange’s oversight methods look like a sieve. “In the case of significant economic crimes committed in Canada, if the company involved is listed on a U.S. exchange, the U.S. authorities will often take action,” notes Favreau, who spent decades charting these and similar failings.33
Canadian leniency toward financial crime is an open secret. “Want to be a corporate criminal? Move to Canada” read a headline in the August 9, 2009, edition of the Globe and Mail. In Canada, court sentences for so-called white-collar crime bear far fewer consequences than in the United States. The judicial system moves slowly, and bail conditions are generous. (In the same edition of the Globe and Mail – a conservative newspaper – columnist Lawrence Martin wrote that the Ontario justice system had given a “shining green light” to “patronage as usual” and “dirty politics as usual” by acquitting former Ottawa mayor Larry O’Brien of influence peddling.)
Existing financial regulations and procedures look good on paper. But who actually complies with them, and how can we believe that there is compliance when we know that legal provisions have no real force? According to Africa specialists Jean-Pascal Daloz and Patrick Chabal, a responsible democratic state is defined less by its formal laws and regulations than by the way in which these measures are enforced. Weak states, by contrast, are characterized by the ingenuity with which they play with their legal restrictions, elude sanctions, flirt with the sublegal, take advantage of loopholes, and operate in darkness.34 “What is at issue is not the inadequacy of rules and regulations, but the fact that they are systematically disregarded; from this point of view old and new regulations share the same fate. In other words, rules and regulations are designed as obstacles to be avoided, points of reference around which procedures are invented to develop new relations.”35
In this context, experts in civic morality, tasteful academics, and other duly authorized representatives of “civil