Fighting White-collar crime, the RCMP can no longer get its man
In a world in which countries are celebrated for distinctive national characteristics— Japan for high-tech innovation, the United States for rugged individualism, France for joie de vivre—Canada is admired for its wide-open spaces and safe, orderly society. Take it from the United Nations—Canada is the best place in the whole world to live. And protecting that society, at least in the perception of foreigners, is a unique institution: the scarlettunicked Royal Canadian Mounted Police.
There is, however, a darker side to Canada’s reputation. To law enforcement agencies in North America and abroad, Canada is now better known as a global leader in commercial, or white-collar, crime. And, increasingly, it is becoming the land where the Mounties do not get their man—or woman.
The annual loss from all varieties of fraud in Canada is estimated to exceed 1.5 per cent of the country’s $800-billion gross domestic product—or more than $12 billion a year stolen from individuals, corporations and governments. Martin Biegelman, a Pasadena, Calif.-based fraud investigator with the U.S. Postal Inspection Service, the oldest federal police force in the United States, is among many foreign law enforcement officers who have noticed a change in criminal patterns. “What we’re seeing is a migration of fraud artists across the border to Canada,” says Biegelman. “Canada is seen as a safe haven.” Squeezed by government spending cuts and the loss of some of their top investigators to the private sector, the Mounties are unable to keep pace with white-collar crime—with the result that Canada now has a two-tier system in which corporations are expected to defend themselves against fraud.
Over the past 30 years, Canada has been the setting for some spectacular frauds: John C. Doyle and Canadian Javelin; Lenny Rosenberg, Bill Player and Ontario’s $500-million Cadillac Fairview apartment flip; the collapse of the Principal Group of companies in Alberta; and, most recently, the Bre-X gold stock scam. Some of the swindles have been stunningly well-planned and daringly executed. Toronto stockbroker Christopher Horne, for example, built a world-class art collection with money he embezzled from clients. Montreal-based Castor Holdings sucked as much as $1.8 billion from victims around the world in a 15-year Ponzi scheme, a pyramid scam where money raised from new investors was used to pay off earlier investors.
Paul Patango is a journalist and author of Above the Law, a 1994 book about political interference in the RCMP. He is currently writing a second book about the Mounties, to be published next spring by McClelland & Stewart.
Toronto has achieved a dubious new distinction. It is regarded by many experts in the justice field as the North American capital of organized criminal fraud, surpassing even such hotbeds of white-collar crime as south Florida, Houston, Orange County in California and the suburbs of New York City. Extradition laws that make it difficult to expel white-collar crooks are part of the problem. Cutbacks in the justice system have forced compromises in both law enforcement and prosecution. Crown attorneys across the country have been given extraordinary powers to pick and choose the cases they want to prosecute, and police forces have been redeploying their resources to address the vocal concerns of various interest groups. These factors, combined with Canada’s lax banking and securities laws, tough privacy legislation, increasing constitutional restrictions on the police, and a disinclination by politicians to declare all-out war on whitecollar crime, have created fertile ground for fraudulent business practices to flourish.
Philip Murray, 54, became commissioner of the RCMP in June, 1994. He was interviewed in Ottawa recently by Maclean’s correspondent Paul Patango. Some of Murray's comments:
On the reputation of the RCMP:
“The RCMP is a positive symbol of Canada. It’s not too often that you have your national police force as your national symbol and your best-known symbol internationally. Across the country, we’ve got tremendous support. I mean, 99.9 per cent of the things we do, we do well. We’re involved in three million investigations during the course of a year. The 10 or 12 that go wrong tend to get the focus.’’
On his knowledge of the Airbus investigation and the controversial letter to Swiss authorities that led to former prime minister Brian Mulroney’s $50million libel suit against the federal government:
“I was fully informed of the investigation right from the beginning. The letter was really a technical document prepared by the department of justice in conjunction with the investigator. There’s really no value added by someone like myself to involve myself in that particular process. I have been and remain aware of where that investigation is at. I don’t know where people got the impression that I was not informed of the investigation because I certainly have been all along.”
On relations between the RCMP and the government:
"I believe very strongly that there has to be a professional arms-length relationship between the government and the police during ongoing investigations.
I think that’s a fundamental cornerstone of our democracy. I don’t think that our system in Canada would work well otherwise. And that’s something that we guard jealously. There is simply no interference in an ongoing criminal investigation. I won’t stand for it.”
On the impact of budget cuts on the justice system:
“There are fewer prosecutors available. There are fewer courtrooms open, and these cases take so long to prosecute that over time there gets to be a tendency [by Crown attorneys] that they almost must have an assurance of conviction before they are willing to proceed.”
On “two-tier” law enforcement:
“The long-term implications clearly are that we’re going to end up with two-tier policing with forensic accounting firms dealing with those kinds of [whitecollar] crimes because the public purse simply will not be able to accommodate it. In reality, we created a two-tier justice system, and I think that’s unfortunate if we end up there. The general public is simply not willing to spend more, to invest more in taxes.”
On the Charter of Rights and Freedoms:
“There have been a number of decisions by the courts in interpreting the charter that have made policing much more difficult today than it was 10 years ago.
We used to have one-page search warrants—they can be 1,000 pages today.”
Some experts say that the conditions are close to ideal. “If a fraud is committed against a bank or a Fortune 500 company, the police aren’t interested,” says Toronto forensic accountant Tedd Avey. “The big companies are on their own. All the police want to deal with are investment scams, widows and orphans and, perhaps, government as victims.”
Twenty years ago, Avey recalls, the RCMP was internationally renowned for its success in putting fraud artists behind bars. ‘Today,” he says, “criminals know it’s pretty well open season in Canada.
They know they’re not going to go to jail.”
Others agree. “There’s so much fraud that the police can’t keep up,” says Pat McKernan, a commercial crime officer who left the Mounties in 1995 and now is the head of security for Western Canada at Imperial Oil Ltd. in Calgary. And a veteran RCMP officer, who is still with the force and asked for anonymity, says that if a crook wants to commit fraud, “Canada is the place to come and do it.” Added the Mountie: “Over the years, we have lost the ability and will to investigate fraud. As a result, the criminals have no fear of the police. It’s a terrible situation.” So what are the authorities doing to combat white-collar crime? The answer, according to police and civilian experts, is that financially strapped police forces across the country—following the lead of the RCMP—are getting out of the commercial crime investigation business. Metropolitan Toronto police, sources told Maclean’s, have a two-year backlog of fraud investigations—and will not even look at scams involving less than $1 million.
They always get their man.
Those five words conjure up a powerful and romantic image of the Mounties. First expressed, ironically, by a Montana newspaper editor (who actually wrote: they fetch their man every time), they speak of professionalism, dedication, camaraderie, teamwork and, most important, success. They say the Mounties are the best police force in the world, and no case is too difficult for them to solve.
Law enforcement experts see Canada as a treacherous place for investors
That is the Hollywood version of the legend and it is the version that Walt Disney Corp. continues to romanticize. Under a controversial 1995 merchandising deal, Disney markets the RCMP name, image and logos internationally. But the legend aside, the Mounties in recent years have attracted more attention for their gaffes than for their triumphs. Despite repeated assurances that arrests were imminent, they have been unable to solve the 1985 Air India bombing that claimed 329 lives. They were late in starting an investigation of Bre-X Minerals Ltd. They have made no apparent headway in getting to the bottom of a number of suspicious deaths, murders and disappearances in the past two years in British Columbia that have been linked to activities on the Vancouver Stock Exchange. The Mounties bungled their investigation of the socalled Airbus affair so badly that, in January, the government was compelled to make a formal apology and cash settlement to former prime minister Brian Mulroney. And their inability even to guard the Prime Minister’s residence forced Jean Chrétien to arm himself with an Inuit sculpture to defend himself against an intruder at his bedroom door in November, 1995.
The RCMP’s problems are not new. They have been building for years, intensifying during the period from 1987 to 1994 when Norman Inkster was commissioner. Inkster’s successor, Philip Murray, is trying to turn the force around, restore its effectiveness and rehabilitate its reputation. But Murray is hamstrung by the legacy of the Inkster years: budget cutbacks, excessive bureaucracy atop a paramilitary structure, an internal reorganization that went awry, and low morale that is causing officers to quit the force at the peak of their careers (page 12).
In the eyes of many experts, the RCMP has long been a mass of contradictions waiting to collide. The United States has about 100 specialized federal law enforcement agencies whose officers have the power of arrest—from the FBI and the Secret Service to the Bureau of Alcohol, Tobacco and Firearms, the National Parks Service, the Drug Enforcement Administration and the Immigration and Naturalization Service. But since the amalgamation of the old Royal North West Mounted Police and the Dominion Police in 1920, Canada has had one federal police force— the RCMP, an extraordinary hybrid whose 15,000 officers try to do everything that the 100 U.S. police agencies do—and much more.
The Mounties enforce a range of federal statutes, including
customs and excise, immigration, taxation, bankruptcy and drug laws. They guard the nation’s borders, patrol the Arctic and, in some places, issue parking tickets at airports. In addition to being the federal force, the Mounties are the provincial police in eight provinces (all except Ontario and Quebec), the territorial police in Yukon and Northwest Territories and the municipal police in 200 towns across Canada. When they are not chasing down rapists and murderers, arresting smugglers or protecting visiting heads of state, they are helping old people cross the street in the Prairies, mediating disputes on native reserves in the North or posing for tourists on Parliament Hill.
Over the years, the RCMP has attempted to adjust to the changing demands of its political masters. It has made itself less militaristic, promoted bilingualism, opened its ranks to women, recruited members of visible minorities, hired civilians for nonpolicing jobs, decentralized administration and operations, and embraced advanced technology (page 16). It has even learned to act more like a business, generating revenue for the government by, among other things, confiscating the assets of drug dealers and other criminals.
Despite its efforts to modernize, however, the RCMP keeps running up against one immutable fact—there are not enough resources available for the force to carry out its panoply of federal, provincial and municipal policing tasks, let alone keep pace with today’s sophisticated criminals. Since 1992, the number of RCMP officers has declined 4.2 per cent, to 14,997 from 15,661, while the population has grown 6.3 per cent. And over the same period, far from seeing an increase in their annual budget—$1.8 billion this year—the Mounties have had to absorb cutbacks of $173 million. Wages have been frozen for five years, with the result that RCMP officers now earn barely half as much as their counterparts in U.S. federal police agencies. Because the force will not pay housing allowances, even Mounties with 20 years’ experience find they cannot afford to live in high-cost centres like Vancouver and Toronto. Restrictions on overtime are so tight that in some places policing has become essentially a 9 to 5 operation. Police sources say that in Hamilton, shift changes and a ban on overtime caused the RCMP to refuse to respond in two cases—one involving the sale of guns, the other a cocaine shipment.
Starting in 1993, budget cuts, plus a decentralization policy imposed by former commissioner Inkster, led the RCMP to pull out of Canada’s largest city. There are no Mounties left in their former headquarters on Jarvis Street in Toronto; the officers— including 60 commercial crime investigators—were dispersed to three detachments in the southern Ontario towns of Bowmanville, Newmarket and Milton, each 50 km or more from downtown Toronto.
In these tough times, virtually the only RCMP operation that is receiving new funding is one known as Integrated Proceeds of Crime. The IPOC program is intended to produce revenue for the federal treasury through the seizure of the assets of criminals. Beginning in the mid-1980s, Ottawa gave the Mounties the power to seize the assets of drug traffickers, expanding it this year to include smuggling, illegal immigration rings and other organized crimes. Until recently, all the proceeds seized went into federal general revenue (and not, specifically, for police purposes); as of this year, Ottawa has begun to share some of the proceeds with some of the provinces.
Commissioner Murray defends the controversial IPOC program. “The taxpayer doesn’t want to invest more in taxes, so consequently, if you can’t make the business case to get more resources, they [resources] are simply not going to be there,” he says. The RCMP’s own figures, however, raise doubts about the program’s effectiveness. In 1994, the force reported that it had seized assets—such as boats and homes—valued at $48.5 million, but when these assets were sold they produced only $7.2 million for the treasury. In 1995, the Mounties valued their take at $43.7 million, but they realized only $14 million.
Critics both inside and outside the RCMP argue that the pressure to collect funds for the government causes the police to give priority to the investigation and prosecution of those cases in which there is money to be recovered. Toronto criminal lawyer Clayton Ruby contends that the proceedsof-crime approach to law enforcement is wrongheaded.
“They’re acting more like tax collectors with an attitude and a gun than like police officers,” Ruby said. Philosopher Jane Jacobs outlined the dangers of mixing business and guardian enterprises in her 1993 book, Systems of Survival. She is worried, she told Maclean’s, about the RCMP’s businesslike mentality. “If you try to make the police run like a business,” Jacobs said, “you make it into one of those monstrous hybrids that won’t serve the public interest well—just as a private business operating as a law enforcement agency ultimately won’t work.”
Former federal Conservative solicitor general James Kelleher is also concerned with what he sees happening to the Mounties. As the minister responsible for the RCMP from 1986 to 1988, Kelleher introduced changes to make the force more accountable and less regimented. Today, he says, the RCMP is headed in the wrong direction. “The Mounties are being squeezed and squeezed on their budgets,” Kelleher said. “They’re not able to cope. There probably should be a royal commission.”
Commercial crime no longer has any priority
The part of the RCMP’s operations that has been most affected by budget cuts and policy changes is the investigation of white-collar crime. In the mid-1960s, partly in response to a series of gruesome murders in Quebec linked to a phoney bankruptcy scheme— a case known as the “limepit murders”—the Mounties pioneered a new approach to commercial crime investigation. Until then, fraud had generally been treated as a civil matter. But when it was evident that organized crime was making inroads into the business world, the RCMP felt it had to establish a powerful presence.
As a result, the Mounties created the specialized Commercial Crime Branch, which quickly attracted some of the force’s best and brightest investigators. Widely copied in other countries, the elite branch had some high-profile successes in the late 1960s and 1970s. As a result of its investigations, the criminal-infested Canadian Stock Exchange in Montreal was shut down, and charges were brought against leading businessmen and companies in the patronage and fraud scandals related to the dredging of the Hamilton harbor and the licensing of airport kiosks called Sky Shops.
In 1997, however, the branch was downgraded and incorporated into a much larger operation called Federal Services, which has borne the brunt of the budget cutbacks. Commercial crime investigators, especially, are starved for resources and manpower. This year, the Mounties will spend just $36.7 million investigating commercial crime of all types in all parts of the country. That is barely two per cent of the RCMP’s overall budget and less than half of the amount—$83 million—that Canadian businesses lost last year to just one form of commercial crime: credit-card fraud.
The Mounties have largely taken themselves out of the business of investigating white-collar crime—except where the government itself is the victim or there is money to be recovered for the treasury. Today, if a corporation is targeted by criminals, it has little choice but to hire forensic accountants and other private investigators—at rates that can run as high as $600 per hour—to root out the crooks. Sonny Saunders, director of corporate security at the Royal Bank of Canada, says that budget cutbacks have caused most police forces in Canada to give low priority to fraud investigations. “Violent crime takes priority,” Saunders said. “I don’t think anybody would argue against that. But it means increasingly that most corporations are going to do their own fraud investigations. Every day there seems to be more and more withdrawal of police services.”
For better or worse, Canada now has a two-tier system of law enforcement: the Mounties look after the interests of the state, and businesses look after themselves. Commissioner Murray acknowledges the situation. An affable 54-year-old career Mountie who made it to the top job three years ago, Murray seems to be far more popular than his predecessor Inkster among rank-and-file officers. “Phil knows what the problems are,” says Insp. Dennis Schlecker at the RCMP municipal policing detachment in the Vancouver suburb of Burnaby. “He’s under no illusions about how easy it’s going to be to get the force back on track.”
Murray is also under no illusions about his force’s virtual withdrawal from the field of commercial crime. “We are a federal agency, and we have a responsibility to investigate fraud against the government of Canada,” the commissioner told Maclean’s. If taxpayers’ money is at stake, “we’ll investigate that,” Murray added, “but we don’t have the resources to investigate if somebody does a fraud on the Royal Bank. I mean, that’s not our mandate. That’s not our responsibility. The long-term implications clearly are that we’re going to end up with two-tier policing with forensic accounting firms dealing with those kinds of crimes over the long term because the public purse simply will not be able to accommodate it.” The Mounties’ woes create opportunities for others. Floridabased private investigator John Quirk, for example, is preparing to expand his operations into Canada. Quirk, formerly with the CIA says he already has a lengthy list of Canadian clients, including a number of major corporations and banks, and is currently investigating a $400-million fraud in Canada. He, like others in the field, specializes in the kind of fraud investigations that the police used to do. To lawyer Ruby, the Mounties’ abandonment of criminal fraud investigation is “a national scandal.” And, he adds, “the RCMP is the only force that can talk about serious fraud in the country. There aren’t nearly enough people doing this work. It takes years to do some of these investigations.”
One man who has personal experience with two-tier policing is Ontario businessman Csaba Andrew Reiden For eight years, Reider and his associates fought an uphill battle to prove that a prominent Toronto lawyer and his Vancouver partner had defrauded them of at least $25 million. Hiring private investigators, they explored offshore bank accounts and gathered enough evidence, Reider believed, to warrant fraud charges.
But the Mounties were not interested in following up. Instead, Revenue Canada decided there were grounds for criminal charges involving $18 million in income tax evasion. Revenue Canada personnel, however, do not have the power of arrest. When they need to charge a suspect, they call in the Mounties. In Reider’s case, the Mounties told Revenue Canada in December, 1996, that the RCMP detachment in Milton, Ont., would be unable to send officers to Toronto to make the arrests—because the detachment had no money left in its budget for overtime or even for fuel for the 120 km round-trip. It was only after Revenue Canada agreed to pay these expenses that the Mounties made the arrests. They got their men—but it was hardly the stuff of legend. □