Proposed Best Practices for Prosecuting Fraud Against Governments (September 24, 2009)

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BACKGROUND

The Public Prosecution Service of Canada (PPSC) was created on December 12, 2006 with the coming into force of the Director of Public Prosecutions Act, Part 3 of the Federal Accountability Act. The PPSC replaced the former Federal Prosecution Service (FPS), the branch within the Department of Justice tasked with prosecuting offences under numerous federal statutes, and with providing advice in relation to offences under those statutes.

The Director of Public Prosecutions Act sets out the mandate of the PPSC. The Act gives the Director the authority to initiate and conduct criminal prosecutions on behalf of the Crown that are under the jurisdiction of the Attorney General of Canada. The Act also provides that the Director has the power to make binding and final decisions as to whether to prosecute, unless the Attorney General of Canada directs otherwise, and that such directives must be in writing and published in the Canada Gazette.

The duties and functions of the Director of Public Prosecutions are set out in section 3 of the Director of Public Prosecutions Act. They include the initiation and conduct of prosecutions on behalf of the Crown and the provision of advice to law enforcement agencies and investigative bodies in respect of prosecutions generally or in respect of a particular investigation that may lead to a prosecution.

The Federal Accountability Act also brought about amendments to the Financial Administration Act by creating new indictable offences, which came into force on March 1, 2007. These offences deal specifically with acts of fraud against the government committed by those having access to funds or other valuable public assets by virtue of their employment within a federal agency, or of a contractual relationship for the provision of required goods or services. The PPSC has jurisdiction to prosecute the new offences under the Financial Administration Act.

Subsection 80(2) of the Financial Administration Act creates an offence of fraud for public servants employed in the collection, management or disbursement of public money who, by deceit, falsehood or other fraudulent means, defraud Her Majesty of any money, securities, property or service. The offence is punishable by a maximum of five years imprisonment and a fine of $5,000 for a fraud of $5,000 or less, or by fourteen years imprisonment and a fine equal to the amount of the fraud for a fraud of more than $5,000.

Section 154.01 of the Financial Administration Act creates a new indictable offence for directors or employees of Crown corporations who defraud the corporation. The maximum penalty set out in section 154.01 is a five-year term of imprisonment and a fine of $5,000 for a fraud of $5,000 or less, and a fourteen-year term of imprisonment and a fine equal to the amount of the fraud for a fraud over $5,000.

It is important to point out that section 380 of the Criminal Code creates a general prohibition against fraudulent activities that also applies in the context of fraud against the government. It is an indictable offence punishable by a term of imprisonment not exceeding fourteen years if the value exceeds $5000. If the value is less than $5000, it is either an indictable offence punishable by imprisonment for a term not exceeding two years or an offence punishable on summary conviction. The definition of Attorney General contained in section 2 of the Criminal Code states that both the Attorney General of Canada and the Attorney General of a province have jurisdiction to carry out the prosecution of an offence under section 380.

This document was developed in response to an assignment issued by the Attorney General of Canada to the Director of Public Prosecutions, which states as follows:

I hereby assign to the Director of Public Prosecutions the responsibility of developing a set of best practices for prosecuting fraud involving governments.Footnote 1

CONSULTATIONS

A multi-stage consultation and review process was undertaken.

The first step involved the development of a survey intended to garner information relating to the manner in which fraudulent activity against the government is defined and dealt with in the legal context across a sampling of common law jurisdictions, both within Canada and around the world. The survey participants were all members of the Heads of Prosecuting Agencies Conference (HOPAC), a forum for prosecution directors from domestic and foreign jurisdictions to “identify common problems and develop common solutions in the area of criminal prosecutionsFootnote 2.

A discussion of the survey results took place at the biennial HOPAC meeting in July 2007. Draft practices were then developed and shared with members of the Securities Fraud and Economic Crime Prosecutors Affiliation (Affiliation)Footnote 3 and representatives from the Royal Canadian Mounted Police (RCMP) and the Ontario Provincial Police who provided comments.

Those amended draft best practices were reviewed and commented upon by Roderick McLeod, Q.C., currently a partner with Miller Thompson LLP and again by the members of the Affiliation.

PROPOSED BEST PRACTICES

The following items have been identified as proposed best practices for prosecuting fraud against government in Canada.

A. Detection, Prevention, and Education in the Area of Fraud Against Government

Best Practice Rationale

1. With Treasury Board of Canada Secretariat (TBS), develop a strategy to increase awareness of the TB Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown.

The TBS Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown requires Department of Justice Departmental Legal Service Units (DLSUs) to consult with the Regulatory and Economic Prosecutions and Management Branch (REPMB) of the PPSC when “suspected cases of theft, fraud, defalcation or any other offence or illegal act involving employees” occur.

The role of the REPMB is not to perform the police function of conducting an investigation or laying charges. The REPMB’s mandate is rather to ascertain whether or not there is a reasonable basis to suspect fraudulent activity which would justify transferring the file to the police, who in turn will decide what the appropriate course of action should be.

To date, there have been relatively few referrals to the REPMB. It is anticipated that with the proposed strategy to increase awareness of the TBS policy and its requirements among departments and DLSUs, there may be more referrals.

2. Cooperate with the Department of Justice Legal Services Unit at TBS in the review of the Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown with a view to updating the policy and assessing compliance with obligations to report suspected instances of fraud against government to the PPSC.

The Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown needs to be updated to reflect recent amendments to the Financial Administration Act and current governmental priorities.

3. Work with other federal departments to develop a document describing offences under the Financial Administration Act.

The enactment of amendments to the Financial Administration Act provides an excellent opportunity to inform and sensitize federal employees, not only to the existence of the new offences under the Act, but also to the offences under the Criminal Code and other federal statutes that would apply to fraudulent conduct in a governmental workplace.

4. Through the Affiliation, review available training programs for federal and provincial prosecutors, and offer assistance to develop additional training program(s) or material on fraud-related offences, if required.

Existing in-house training programs could be adapted to include a module specifically dealing with fraud-related statutes. In addition, prosecutors may require specialized skill sets to conduct this type of prosecution.

5. Develop and offer in collaboration with TBS, a training program for DLSU counsel on the new offences under the Financial Administration Act and the protection of whistleblowers. This training program will also be made available to provincial attorneys general through the Affiliation.

Pursuant to the Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown, Department of Justice DLSUs have a duty to consult with the REPMB Branch. A generic presentation with information on new and existing fraud offences, and additional material that could potentially assist their respective client departments to detect and deter fraudulent activity, would raise awareness within government departments. Canada has afforded legislated protection to employees under the Public Servants Disclosure Protection Act.

6. Develop a communications strategy for advising the media about the major steps in fraud investigations and prosecutions and the results of fraud prosecutions involving governments.

Media attention could assist in raising public awareness, providing information to Canadian citizens, promoting general deterrence, and promoting public confidence in the efficacy of the administration of justice.

7. Identify patterns, if any, of potentially fraudulent activity and report them to TBS and the RCMP.

Although the PPSC is not responsible for the collection of data on fraud against government, it could inform TBS and the RCMP of identified patterns that emerge from the files it reviews. The observations could be useful to ascertaining what kind of preventative measures is required to deter the commission of frauds against government.

B. Prosecutorial Involvement at the Investigative Stage

Best Practice Rationale

8. Provide legal advice in a timely manner to federal departments which suspect they are victims of fraud, to determine whether or not the incidents should be reported to the police.

Pursuant to the Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown, DLSUs will consult with the REPMB when they are referred by their client departments suspected cases of theft, fraud, defalcation or any other offence or illegal act involving employees.

The role of the REPMB is not to perform the police function of conducting an investigation or laying charges. The REPMB’s mandate is rather to ascertain whether or not there is a reasonable basis to suspect fraudulent activity which would justify transferring the file to the police, who in turn will decide what the appropriate course of action should be.

9. Provide pre-charge advice to investigators during the investigation.

Pre-charge advice may assist investigators, among other things, in the collection of the required evidence in a manner that ensures its admissibility at trial.

10. Compile templates and checklists used by police officers for routine applications (such as for search warrants and production orders) made in the course of an investigation, and provide assistance in the development or up-dating of these materials, as necessary. This compilation process should be done in collaboration with law enforcement agencies through, among others, the Affiliation.

This would help to ensure a consistent approach to investigations.

11. As required, provide assistance to federal departments and the police for the purposes of updating and implementing Memoranda of Understanding (MOU) in order to facilitate information-sharing.

It is common in files involving fraud against the government that an internal departmental investigation is conducted in parallel with a criminal investigation. In this context, information- sharing issues between departments and the investigative agency may arise. For example, departments may be hesitant to share personal information with law enforcement agencies because they feel obligated to protect it.

MOU are helpful to clarify the roles and responsibilities of the organizations involved. They may also simplify the information sharing process. For example, paragraph 8(2)(f) of the Privacy Act allows a government institution to disclose personal information pursuant to an agreement or arrangement between the institution and another institution described in that paragraph for the purpose of administering or enforcing any law, or carrying out a lawful investigation.

C. Case Preparation and Prosecution

Best Practice Rationale

12. In collaboration with provincial attorneys general through the Affiliation, make widely available to prosecutors resources such as:

  • standard indictments for fraud and related offences;
  • briefs;
  • victim impact statements;
  • model lines of questioning that can be adapted to the particular facts of the case; and
  • sentencing submissions.

Making such standardized materials readily available would enhance consistency in approaches to prosecuting fraud against government, and reduce preparation time and trial delays.

13. In collaboration with provincial attorneys general through the Affiliation, develop a Canada-wide sentencing database to assist Crown prosecutors in the preparation of sentencing briefs.

A sentencing database would assist prosecutors in presenting sentencing submissions that are consistent with practice throughout Canada.

14. Consider supplementing current PPSC prosecution policies to set criteria for determining whether or not to prosecute instances of fraud against government.

The U.S. Department of Justice issued memoranda setting out principles regarding prosecution for fraud. It provided factors to be considered by prosecutors in reaching a decision as to the proper treatment of a target, and an indication about the type of behaviour that may attract criminal liability.

Similar policies in Canada could provide prosecutors and other government employees with directives about the circumstances which attract criminal liability.

15. Consider the development of MOU with provincial attorneys general to ensure coordinated prosecutions in cases of fraud against government.

Fraud prosecutions pursuant to s. 380 of the Criminal Code are generally carried out by provincial attorneys general. The PPSC has jurisdiction to prosecute the new offences under the Financial Administration Act.

D. Approaches to Dealing with Complex Cases of Fraud Against Government

Best Practice Rationale

16. Upon request, provide strategic advice to investigators concerning the operational plan, target(s), and prospective charge(s), in order to keep focussed an investigation in complex cases dealing with frauds against government.

As mentioned in Chapter 11 of the Federal Prosecution Service Deskbook:

The police have complete autonomy in deciding whom to investigate and for what suspected crimes. They also have the discretion to decide how to structure an investigation and which investigative tools to use.

However, prior to undertaking an investigation or in its early stages, investigators may wish to consult with Crown counsel for advice and guidance as to how the investigation should be structured to ensure a sustainable prosecution. It is best to make structural decisions early in the investigation, rather than waiting until it is too late to take corrective action.

17. Apply established mega case policies and procedures for handling investigations and prosecutions of fraud against government.

The PPSC has developed and used policies, such as Chapter 54 of the Federal Prosecution Service Deskbook with a view to efficiently conduct the prosecution of megacases.

18. Provide legal assistance to investigators in complex cases. More specifically, this could include, but would not be limited to:

  • providing assistance in the drafting of general warrants, tracking warrants, dialled-number recorder warrants, and production orders under ss. 487.012 and 487.013 of the Criminal Code;
  • providing strategic advice to investigators to protect the integrity of the criminal investigation when parallel civil, disciplinary, and / or administrative investigations are underway;
  • obtaining authorizations for electronic surveillance pursuant to s. 186 of the Criminal Code;
  • obtaining special search warrants and restraint orders pursuant to ss. 462.32 and 462.33 of the Criminal Code regarding suspected proceeds of crime;
  • obtaining orders for the disclosure of income tax information pursuant to s. 462.48 of the Criminal Code;
  • assisting in the processing of outgoing mutual legal assistance requests and in the enforcement of orders on behalf of foreign governments;
  • assisting in the preparation of the disclosure package; and
  • providing assistance in the drafting of the Report to Crown Counsel.

Some fraud against government cases may be complex in nature, and would warrant the early involvement of Crown prosecutors. Chapter 11 of the Federal Prosecution Service Deskbook already provides useful guidelines concerning the type of fruitful collaboration that can take place between police officers and prosecutors at the investigative stage.

19. Establish case management practices governing:

  • the selection of counsel who possess the skill set needed to address the requirements of a file;
  • the development of a complement of counsel who have an interest and expertise in the prosecution of fraud cases;
  • and the implementation of a “task force” approach to handling complex fraud cases.

Such practices would ensure that the PPSC has the capability to handle complex fraud cases that arise pursuant to the new provisions of the Financial Administration Act.

A properly equipped investigation and prosecution team could effectively deal with investigative and trial issues so as to obtain more timely adjudication of files.

E. Performance Measures in Prosecuting Fraud Against Government

Best Practice Rationale

20. Compile data concerning opinion requests to the PPSC pursuant to the TBS Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown. This would include:

  • information about the concerned agency; descriptions of the nature and scope of the alleged offence(s);
  • and recommendations about whether or not to report alleged fraudulent conduct to police;

The data may assist in evaluating the effectiveness of the PPSC’s role in the prosecution of frauds against government.

21. Compile data on prosecutions in the area of fraud against government handled by the PPSC. This would include:

  • the number of fraud-related cases examined by the PPSC for pre–charge screening;
  • the number of charges laid pursuant to the Financial Administration Act;
  • the number of convictions; and
  • the nature of any sentences imposed.

Though prosecutions under the Financial Administration Act in the area of fraud against government have yet to occur, the PPSC has an interest in ensuring that such data is collected for its own reporting, monitoring, and evaluation purposes, and to gauge the effectiveness of recent legislative amendments.

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