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Criminal groups threatening capital markets, RCMP says

DEAN BEEBY
The Canadian Press
December 8, 2008 at 4:31 AM EST
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OTTAWA -- Organized crime has become a significant threat to Canada's capital markets, a new report from the RCMP's fraud squads says.

Major crime groups are recruiting investment professionals to help them move far beyond traditional activities - smuggling, extortion and counterfeiting - into the rarefied world of high finance and market manipulation, the Mounties say.

"Using the markets requires a degree of knowledge and expertise," says the draft report from the RCMP's Integrated Market Enforcement Teams, or IMETs.

"Organized crime groups harness this skill set by using professional facilitators in the industry.

"The facilitators' subjective knowledge of the true nature of these schemes ranges from willful blindness to direct fraudulent participation."

The alarm is being sounded in the first strategic-intelligence report issued by the fraud squads since they were founded in 2003 as Canada's answer to aggressive U.S. probes into the Enron, Tyco, WorldCom and other Wall Street scandals.

The Canadian Press obtained a heavily censored version of the 23-page RCMP report under the Access to Information Act.

The document is intended to alert Canadian law-enforcement agencies and foreign partners to crime trends observed in Canada's capital markets in 2007-2008.

Organized crime and "criminalized professionals" - rogue investment specialists - are described as the two main players in financial crimes.

The Mounties acknowledge that busting criminal organizations that manipulate capital markets is a daunting challenge.

"The majority of the activity occurs indirectly and is obfuscated under the cloak of apparent legitimate trading between arms-length buyers and sellers," the document says.

"Organized crime groups are constantly innovating their money laundering and fraud techniques in the attempt to remain one step ahead of law enforcement."

The released sections of the report do not identify which organized crime groups are active in market frauds.

The IMETs have been criticized over the past five years for the glacial pace of their often-complex probes.

So far, criminal charges have been laid in just nine cases, four of them relatively minor. Four of the major investigations saw charges filed only this year.

The teams had initially set themselves a tight deadline of one year from the start of a probe to the laying of charges, but have not lived up to the promise.

Mountie officials did not respond directly to a question about whether organized crime has been involved in the investigations where charges have been laid. Four of the nine cases involve some form of money laundering, a traditional activity of crime groups.

"As our charge history has shown, our investigations involve everything related to capital markets fraud, from large companies trading on senior exchanges to small companies on Over-the-counter Bulletin Board (OTCBB) and the Pink Sheets," Sergeant Dean Buzza, director of the integrated market enforcement branch, said in an e-mail. "Given this broad spectrum, and the sheer magnitude of transactions in the capital markets, it would be expected that traditional organized crime groups would, in one way or another, be connected to the capital markets."

OTCBB and Pink Sheets refer to the less-regulated electronic trading in shares of smaller companies that are generally exempt from disclosing full financial information, as regulators require of firms listed on stock markets.

The RCMP fraud squads have complained they lack power to compel testimony from reluctant witnesses who are protected by a constitutional right against self-incrimination.

Ottawa has been consulting with the provinces for more than a year on ways to introduce such power, which securities cops in Britain and the United States enjoy, as do Canadian investigators working under the authority of the Income Tax Act and the Competition Act.

A spokeswoman for Public Safety Minister Peter Van Loan says a proposal is in the works.

"It is still moving forward," Stephanie Rea said in an interview. "We're hoping that we can have something solid soon."

There are currently nine IMET teams, three in Toronto and two each in Vancouver, Calgary and Montreal. The teams, funded at $31.3-million annually, employ forensic accountants, market specialists and federal prosecutors to help unravel often-tangled financial crimes.

Sgt. Buzza said the current meltdown of financial markets underscores the original rationale for the fraud squads, that the loss of public confidence in the system, whether because of crime or financial bungling, not only hurts markets but the economy as well.

"For quite some time, we have been saying that when the confidence of Canadians, investors and members of the business community in the integrity of the financial system is shaken, it has a detrimental effect on the economy

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