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Second reading of Bill S-220, An Act to amend the Criminal Code (international fraud)

Second reading of Bill S-220, An Act to amend the Criminal Code (international fraud)

Second reading of Bill S-220, An Act to amend the Criminal Code (international fraud)

Second reading of Bill S-220, An Act to amend the Criminal Code (international fraud)


Published on 12 April 2016
Hansard and Statements by Senator Céline Hervieux-Payette (retired)

Hon. Céline Hervieux-Payette:

Honourable senators, allow me to begin by welcoming my colleagues and telling them that I may have to call on them soon to sponsor the bills I introduced during this Parliament, as I will be leaving the upper chamber next week. During the last Parliament I introduced six bills, probably for my own satisfaction too, because I firmly believe in the process. I never did that before. These are things that are important to me.

Today I want to talk to you about a bill that means a lot to me, since I spent the better part of my more than 20 years at the Senate as a member of the Standing Senate Committee on National Finance and of the Standing Senate Committee on Banking, Trade and Commerce, as deputy chair.

I am very proud to give you a report on my studies, my research, and, especially, the exceptional work done by my staff. I want to address the scandal at UraMin, which put Areva into bankruptcy. Areva was a very large French corporation in charge of all the nuclear power plants in France. I’m not surprised that you haven’t heard of this. Unfortunately, the person who set up that system is a Canadian named Stephen Dattels. The transaction took place in part here in Toronto and the portfolio was managed in a number of countries.

I would invite you to listen to the account of the UraMin scandal because it is having an impact in Africa, France, Canada, the United States, the Virgin Islands and other places. The events took place in 2006 during the race for uranium. At the time, the large nuclear corporations were vying for leadership in the energy sector, particularly in Europe, since questions were being raised about the pollution caused by oil and gas.

Enter Areva, a nuclear giant with 87 per cent of its shares held by the French government. Headed by President and CEO Anne Lauvergeon, Areva had to fight to acquire uranium deposits and, in particular, lucrative contracts for maintaining nuclear power plants in Africa. That is when Mr. Dattels and company proceeded to acquire many uranium deposits in Africa through a major but questionable African business network. That was when UraMin was born.

The company’s executives quickly listed the new business on the Toronto Stock Exchange — the TSX Venture Exchange — and on London’s junior stock exchange, AIM. This small company started from nothing. According to Mr. Dattels, he and his partner each invested $50,000 to start the company, which went through all the necessary steps to ensure its credibility with international investors. It was practically a miracle. Once it was listed on Toronto’s and London’s junior exchanges, UraMin rolled out its communications campaign, disclosing that it owned an incredible quantity of uranium in its deposits, something that was strongly refuted by various investigations conducted in France.

On October 27, 2006, Areva took the bait and officially informed UraMin executives that it intended to buy the company. I would like to you to remember the following figures: on October 27, 2006, UraMin shares were worth $1.46 Canadian and its market capitalization was valued at $471 million U.S.

However, it was still not enough for the Dattels team. After all, the race for uranium was heating up and the price was on the rise. UraMin continued its communications strategy of inflating the quantity of uranium available in its deposits. The company’s value continued to balloon.

In the meantime, a series of suspicious events occurred at Areva. There was a conflict of interest that personally involved the CEO, Anne Lauvergeon. Her husband recommended a former banker with a chequered past to conduct the negotiations with UraMin. She acted on the recommendation and hired the shady banker. Something incredible happened. Areva’s management decided that it would not conduct a due diligence study on the so- called largest uranium deposit in Namibia, and chose to rely solely on the geological study provided by the vendor. Incredible, but true: only one study for a $2.5-billion acquisition.

Areva then officially announced the purchase of UraMin on July 31, 2007. At the time of the transaction, UraMin shares were valued at $8.28 Canadian, representing a market capitalization of $2.5 billion U.S. In nine months, the value increased from $471 million to $2.5 billion even though there was no uranium.

The French media were very interested in the acquisition of UraMin due to the exorbitant price tag. They discovered a series of schemes and irregularities that occurred over those nine months. Major French media, such as Le Monde and Médiapart, also uncovered a complex network that permeated the political and business worlds in Africa and helped inflate the value of UraMin.

The story hit home for all French people, which comes as no surprise considering that they owned 87 per cent of Areva’s shares. A former geopolitics expert even wrote a detective novel called Radioactif based on the facts of the scandal.

Areva’s executive responded quickly. Facing media pressure, they panicked. In utmost secrecy, a member of the executive decided to find out more about Ms. Lauvergeon’s decisions and actions by hiring private investigators to examine and analyze the thousands of emails the CEO had sent during the negotiations held between October 2006 and July 2007.

Honourable senators, this is a big deal. Some of Areva’s former senior executives are currently the subjects of a judicial inquiry. French examining magistrates are taking a close look at the former CEO, Anne Lauvergeon. In May 2005, the national financial prosecutor assigned two judicial inquiries to three of its magistrates. In French law, a judicial inquiry is like a preliminary inquiry in which the evidence is assessed to determine whether the case will proceed to trial.

The first judicial inquiry concerns fraud, fraudulent use of corporate property, bribery of a foreign official, and suspicion of insider trading. The second is for dissemination of false information, presentation of inaccurate financial statements, abuse of power, and forgery and the use of forgeries.

The French magistrates will also consider the role of Canadian financiers in the transaction that led to this matter of state. Canadian authorities have shown no intention of investigating the transaction that led to the collapse of the global nuclear giant. Various audits, including one by the French National Assembly’s finance committee — led by socialist representative Marc Goua, whom I have been in contact with — found that Dattels and his associates lied outright about their uranium reserves and deposits in documents issued for both Toronto’s TSX and London’s AIM.

To add insult to injury, Dattels and his associates published a book detailing the company’s success, which is absolutely incredible. The book is UraMin, A Team Enriched: How to Build a Junior Uranium Mining Company. Try to find it: the book is currently unavailable, and nobody knows who has a copy.

The UraMin scandal was far-reaching, but stayed under the radar of Canadian media, except for a series of articles that appeared in La Presse. This media silence in English Canada continued despite my intervention before you, honourable colleagues, in February 2012. I asked the then leader of the government, Senator LeBreton, to put pressure on the Harper government to have the financial unit of the RCMP conduct an investigation into the UraMin affair. Disappointed by the government’s inaction, I decided to take the bull by the horns and do my own independent study in the UraMin case, this time from a Canadian perspective.

I would remind you that Quebec is a major producer of various minerals. We have a significant mining sector in Quebec and Canada, and I wouldn’t want a similar scandal to occur here at home.

The Constitution gives the Senate, as a federal legislator, one of the most powerful powers an institution can hold. Believe it or not, as senators, we have jurisdiction to legislate on criminal matters. That is why I decided to act on a legislative level following my investigation into UraMin, by introducing Bill S- 220, entitled the Combating International Fraud Act.

Bill S-220 is my response to the concerns of our Canadian stock market. As a broker, who passed the exams of the governing body of real estate brokers, and as deputy chair of the Standing Senate Committee on Banking, Trade and Commerce, I could not be more disappointed in the recent scandals that shook the stock market, including those involving Bre-X, Nortel, and UraMin. Note that in each case, it was the shareholders who were left to foot the bill. Very often those shareholders are Canadian retirees who invested in a pension fund for their retirement.

It has always been difficult for Canadian courts to prosecute foreign offenders or Canadian offenders living abroad. The issue is a procedural one. Canadian criminal prosecution is generally determined by territorial jurisdiction. In other words, Canadian courts can generally try individuals for offences committed only in Canada.

However, there are exceptions to territorial jurisdiction in common law. Section 7 of the Criminal Code provides for several types of criminal offences that can be prosecuted by Canadian courts, such as offences committed on board an aircraft, and those related to terrorism, hostage-taking and pedophilia. However, according to jurisprudence, there must be a real and substantial link in order to give extraterritorial scope to an offence that is not stipulated in section 7 of the Criminal Code.

Surprisingly, section 7 of the Criminal Code does not provide for the extraterritorial application of fraud offences. From recent reports about the Panama papers, we know that these transactions are conducted in the shadows. Under the Criminal Code, persons charged with fraud cannot be tried by Canadian courts unless the offence was committed in Canada or it has a real and substantial link to Canada.

In the digital world of the 21st century, limiting the territorial application of fraud offences is archaic. As stock exchanges implement increasingly advanced technology, it is becoming easier for investors and fraudsters to carry out transactions anywhere in the world. Our criminal statutes are no longer appropriate for dealing with today’s fraud offences. We must introduce provisions to lay charges in Canada against international perpetrators of fraud and to charge Canadian perpetrators operating outside our country. Therefore, I am proposing that subsection 4.21 be added to section 7 of the Criminal Code.

My review of legislation highlighted several offences that should be given extraterritorial application. The UraMin case shows just how ingenious the perpetrators are and why these offences require extraterritorial application. I have therefore decided to include other fraud offences beyond those involving economic and securities fraud that could put Canadians at risk every day.

To be more specific, extraterritorial application must be given to eight provisions of the Criminal Code, namely sections 380, 382, 382.1, 383, 384 and 392, subsection 402.2(1) and paragraph 403(1)(a).

The first provision is section 380, which deals with fraud offences in general and gives them a broad interpretation. Fraud is defined as the action to defraud someone of any security by deceit, falsehood or other fraudulent means. Since section 380 provides for the general offence of fraud, we have every reason to give it extraterritorial application.

Given that the UraMin scandal may have involved manipulation of the company’s stock price while it was listed on both the Toronto and London exchanges, it is clear that we must add an extraterritorial application to the fraudulent manipulation of stock exchange transactions. It is important to remember that UraMin’s stock price somehow increased by 467 per cent from October 2006, when Areva notified UraMin of its interest in acquiring the mining company, to July 2007, the official date of purchase. The purchase price for UraMin increased from $471 million U.S. in October 2006 to $2.5 billion U.S. in June 2007. This dramatic increase occurred while UraMin executives were making questionable promises about reserves and the amount of uranium.

Bill S-220 grants extraterritorial application to section 382, which concerns market manipulation, an offence that involves creating a market for securities that has little or no bearing on their actual value. It includes wash sales, in which a purchase and a sale take place but there is no change in the beneficial ownership of a security.

The third offence that Bill S-220 gives extraterritorial application to is section 382.1. This is another section that Canadian authorities could have used to investigate the Dattels gang. It involves the offence of insider trading and tipping. Prohibited insider trading consists of the purchase or sale of securities using material non-public information that could affect the securities’ price. It also covers tipping, which is providing insider information to a third party for that party’s benefit or the benefit of the insider.

The fourth provision of Bill S-220 that gives extraterritorial application to section 383 is gaming. This provision concerns the indictable offence of rigging a company’s stocks or merchandise.

Bill S-220 also gives extraterritorial application to section 384, which deals with broker fraud. A broker is guilty of an offence if he sells his customer’s shares or causes them to be sold while he or his firm or a partner thereof, or the corporation or a director thereof has a direct or indirect interest. My colleagues might remember the Bre-X scandal.

The sixth provision addressed in my bill concerns section 392, which provides for the criminal offence committed by a debtor with regard to his property in order to defraud creditors. It also covers the case of a third party who receives property from a debtor who has fraudulently taken possession of his creditor’s property.

Lastly, honourable senators, I want to point out that the last two provisions that give extraterritorial application are not directly related to economic fraud. They have to do with identity theft and fraud, because I believe that identity theft and fraud overseas are a real scourge. To anyone who has a credit card with a chip, if you don’t have the kind of wallet that protects it, you need to know that your credit card can be stolen without it ever leaving your wallet.

Identity theft refers to the initial step of obtaining someone’s personal information in order to commit an indictable offence that includes fraud, deceit or falsehood as one of its elements, or being reckless as to whether the information will be used for such a purpose. It does not involve the use of the information but the simple fact of acquiring someone’s personal information.

I also chose to include identity theft in Bill S-220, because someone who commits identity theft necessarily commits identity fraud as well. Unlike identify theft, identity fraud involves using the personal information of another person, living or dead, for the purpose of committing offences involving fraudulent transactions such as personation and use of a credit card.

Now that I’ve set out the eight provisions of Bill S-220 that give international scope, now let’s look at the fraudsters that my bill would target.

Pursuant to Bill S-220, two types of persons could be found guilty of a fraud offence with extraterritorial application. The first is the person who commits the act, and the other is the person who commits the act and is present in Canada during the commission of the act. Furthermore, Bill S-220 includes a further instance if the act is committed against a Canadian citizen.

The person who commits the act may encompass four different types of people: first, a person who is a Canadian citizen; second, a person who has acquired permanent resident status; and third, a person who is not a citizen of any state and ordinarily resides in Canada.

Lastly, it may be an organization.

The person who commits the act and is present in Canada during the commission of the act refers to a Canadian or foreign fraudster who is present in Canada during the commission of one of the eight aforementioned offences.

Bill S-220 provides a further instance that would enable the Crown to prosecute anyone who allegedly committed an offence against a Canadian citizen. Specifically, if the victim of one of the eight offences in Bill S-220 were a Canadian citizen, there would be grounds to launch an investigation and lay charges against the perpetrator.

In conclusion, adding an extraterritorial scope to specific fraud offences will make it possible to address the problems the Crown is having with respect to various international business transactions. People who commit fraud are well aware of the pitfalls and grey areas that legislation creates and are able to exploit them, hide their own activities and disappear from the authorities’ radar. The lack of a Criminal Code provision giving extraterritorial application to certain fraud offences is a major shortcoming in Canadian law. It is proving difficult for the Crown to take legal action in accordance with the rule of territorial jurisdiction and international comity.

There is another restriction on international prosecutions in Canada in addition to territorial jurisdiction. Prosecutions must not contravene the requirement of international comity, which is the recognition that one nation allows within its territory to the legislative, executive or judicial acts of another nation, and the deference and respect due by other states to the actions of a state legitimately taken within its territory. In practice, this requirement would be demonstrated by a nation’s willingness to submit an extradition request in order to prosecute an offender.

As I delved into this case, I discovered how complex UraMin’s corporate structure was and how difficult it was to untangle. If I were to draw a diagram of all of the companies and players involved, you would think it was a game, not real life. First, the two founders of this company have different nationalities. Dattels is Canadian and his colleague is British. Second, Dattels’ office is in London, while his colleague’s office is on the Isle of Man. Third, UraMin is registered in Tortola, in the British Virgin Islands. Fourth, UraMin is listed both in Canada on the TSX Venture Exchange, and in the United Kingdom on AIM, the London Stock Exchange’s international market for smaller growing companies. Fifth, the small start-up company’s main asset consisted of the rights to deposits in Africa. It’s easy to see why prosecutors have difficulty establishing a real and substantial link in this case.

Honourable senators, I would like to conclude this presentation by reiterating the importance of giving extraterritorial application to certain fraud offences, which unfortunately are too often committed in the mining sector. As federal legislators, it’s our duty to protect Canadians against all these types of fraudsters, whether they are from Canada or elsewhere.

I made several attempts in Canada to get more information on this case. I can tell you that transparency was sorely lacking, so I went as far as contacting the Commission des valeurs mobilières du Québec, which tried to seek information in Toronto on my behalf. However, we never found out who received that 2.5 billion. I hope that you will consider my bill, and if the government wants to take it up, I’m prepared to hand it over.

Thank you.