Democracy Watch: How to untie the unethical knots revealed by Minister Morneau’s scandal

by Duff Conacher

In all the spin and the counter-spin concerning Finance Minister Bill Morneau’s conflicts of interest scandal, what are the real problems, and how can the unethical knots that the scandal reveals be untied to ensure ethical government decision-making in the future?

Let’s begin at the beginning. Canada’s federal ethics law, called the Conflict of Interest Act, says its purpose is to “minimize the possibility of conflicts” and “provide for the resolution of those conflicts in the public interest” while encouraging “experienced and competent persons to seek and accept public office” as politicians or public officials.

Those kind of public office holders may, like Minister Morneau, have been successful in the business world, and like him have lots of relatives and friends involved in businesses, and lots of investments and houses and properties. They may have been successful in another field, such as working with unions, and have relatives and friends involved in unions, and also have saved and invested in companies, and maybe even a cottage or vacation property.

Most everyone, including international standard-setters like the UN and the OECD, the Supreme Court of Canada in its rulings, and experts worldwide, say that in order to have a democratic good government, it is key to ensure that politicians and government officials are prohibited from making decisions and spending money helping themselves, their relatives and their friends, or protecting their investments or properties.

Why? Because while a politician or official may claim that they made a decision to help the public, and while they and others may claim that they are completely ethical, no one can tell whether that is true. Despite the claims of 1-800 TV psychics, no one can do a Vulcan mind-meld to determine the actual reasons why anyone makes a decision.

Canada’s Criminal Code prohibits politicians and government officials from directing government contracts or spending to themselves, their relatives, friends and associates, and from taking bribes or kickbacks for doing so, with time in prison as the penalty.

Many people assume that Canada has stopped this kind of thing happening, at least for big contracts and spending decisions. However, the corruption scandal that continues to unfold in Quebec, and other scandals across the country like the GTH land deal in Saskatchewan, and the fact that the RCMP only launched a federal anti-corruption team a few years ago, a clear signs that no one should make this assumption.

Italy’s police force warned in 2012 that the Mafia was just as strong in Ontario as Quebec, and involved in corruption among other crimes, and that Canada has weak laws and enforcement. And when he retired from his position as RCMP Commissioner in June 2017, Bob Paulson warned the organized crime was the greatest threat to Canada, including its involvement in corrupting politicians and government institutions.

To find a politician or government official guilty of violating the Criminal Code’s anti-corruption measures, prosecutors have to prove they did it beyond a shadow of a doubt. That’s not easy to do in many situations, so experts agree that the old “ounce of prevention” approach helps ensure government integrity.

That means having laws, like Canada’s federal ethics law, that prohibit public office holders from even taking part in discussions or decisions where they could help themselves, their relatives or friends. But what lines should that prohibition draw?

Usually, ethics laws prohibit Cabinet ministers and top government officials from having the direct conflict of interest of owning a business or investments in businesses, as Canada’s federal ethics law does. However, Ethics Commissioner Mary Dawson interpreted the law in a legally incorrect way to create a loophole, and has allowed Minister Morneau and other Cabinet ministers to own investments and other assets indirectly. Many people are calling for the loophole to be closed – but there is no loophole which is why Democracy Watch is filing a court case challenging the Ethics Commissioner’s decision.

Canada’s federal ethics law also allows ministers and top officials to own mutual fund investments without even disclosing them publicly, and to put other assets and investments in a so-called “blind trust.” These investments should be prohibited, and (as the Parker Commission recommended in 1987) blind trusts should be abolished because ministers and officials can easily know what they own, especially since they choose their own trustee.

The only way to prevent these conflicts is to require Cabinet ministers and top government officials to sell all their investments in businesses (as the Parker Commission also recommended in 1987). They can take the money from selling them and buy term deposits or government bonds that pay a set interest rate until they leave office.

They are already paid a salary in the top five per cent – they don’t need to make more money while in office, especially by making decisions that help themselves instead of helping as many Canadians as possible.

If a minister or top official owns some asset or investment which is not possible to sell, they should be required to disclose it publicly (as the Parker Commission also recommended).

What about businesses or investments owned by the relatives or friends of Cabinet ministers and top officials? Canada’s federal ethics law requires their spouses and dependent children to disclose their investments only to the Ethics Commissioner – they are not required to sell anything. Spouses should be required to disclose their investments publicly (as the Parker Commission also recommended), as should all children whether or not they live at home.

To avoid disrupting the lives of other relatives and friends of a person who enters politics or government, another approach is usually used to prevent conflicts with their interests. The minister or official is prohibited from taking part in discussions or decisions that affect their own interests, and the interests of their relatives or friends, directly or indirectly.

Political ethics laws across Canada don’t do this, however. They all have a huge loophole that actually allows ministers and top officials, and all politicians and their staff, to participate in and make all decisions that apply generally, even if they have a direct financial conflict of interest. Yes, that’s right, the powerful people in politics in Canada are allowed to profit from their decisions. This loophole must be closed, and the rule must be that they are prohibited from taking part in any decision if they have even the appearance of a conflict of interest.

The federal Ethics Commissioner has made things even worse by creating so-called ethics “screens” that hide whether ministers and officials are actually stepping aside when they have a conflict of interest. The federal ethics law requires disclosure every time a minister steps aside and, as a result, Democracy Watch believes the screens are illegal “smokescreens” and is challenging them in court.

What about ethics rules for MPs and senators, and their staff, and lower-level government employees? A general principle is that the more decision-making power a politician or official has, the stronger the ethics rules should be. Canada’s federal ethics rules violate this principle. The rules for Cabinet ministers, MPs and their senators all have the same huge loopholes.

In contrast, even federal government employees with little decision-making power are prohibited from having interests that are affected by “government actions in which they participate” and from taking part in decisions when they have even the appearance of a conflict of interest. The Prime Minister has the same rules in his code for ministers and their staff (which has existed in one form or another since 1985). However, those rules are only in the PM’s code, not in the federal ethics law, and no prime minister has ever enforced these key rules in their code.

The simple solution is to take the rules in the PM’s code (or the government employees’ code) and put them into the federal ethics law (and every government across Canada should make the same change to its ethics law).

What about enforcement? The first problem is that the federal Ethics Commissioner is chosen by the Cabinet, with opposition party leaders only consulted on the choice. Politicians choosing their own watchdog is a bad idea. Instead, a fully independent commission should be established, with commission members appointed by non-governmental organizations like the Canadian Judicial Council. The appointments commission should be empowered to conduct a public, merit-based search to come up with a short list of candidates for all watchdog positions (including judges). The Cabinet should then have to choose from the commission’s short list.

In fact, the federal Ethics Commissioner is currently on her third six-month contract with the Trudeau Cabinet, essentially serving at the Cabinet’s pleasure. Democracy Watch believes this contract is illegal and undermines the independence of commissioner, and is challenging it in court.

Another problem is that Canada’s Ethics Commissioner trusts everyone to do the right thing, and has refused to use her legal power to do audits of financial statements and activities of ministers and officials. This must change – audits are essential to the enforcement of any law, and so the Ethics Commissioner must be required to do random, regular audits.

The Ethics Commissioner can refuse to investigate a complaint, and is not required to investigate and rule on complaints filed by members of the public even though we pay the salaries of all politicians, political staff and government officials and employees. The Ethics Commissioner must be required to investigate and rule publicly on all complaints.

If someone believes the Ethics Commissioner’s ruling on a complaint has ignored facts or the law, they can’t challenge her in court. She is an unaccountable czar. This must be changed to ensure that the Ethics Commissioner can be held accountable if her rulings are clearly wrong in any way.

Finally, the penalty for violating the federal ethics law, one of the key laws that protects our democracy, is a maximum $500 fine, and only for failing to file accurate documents with the commissioner. Mandatory high fines of at least one year’s salary should be the penalty for all violations.

Overall, a federal Cabinet minister or top government official has less chance of getting caught, and will pay a smaller penalty, for violating the ethics law than you will for parking illegally wherever you live.

It’s long past time for federal political parties to close the unethical loopholes, and ensure a fully independent, fully empowered, accountable and strong Ethics Commissioner is appointed to enforce the rules, and to penalize all violators. Canadians deserve no less, especially from the Trudeau Liberal government that promised real change, and open and honest government.

Duff Conacher is Co-founder of Democracy Watch, Canada’s leading democratic reform organization