The Art of Looking the other Way

Posted on by Pete Cross

Fraud has many formulations and iterations; corruption, cronyism, nepotism, parochialism, patronage, influence peddling, and outright theft. In this country it has become dispiritingly common place. The blatancy apparent in whichever direction we look. Is this dwindling of basic economic honesty beginning to fester, to grow, and create a doubt. Is there a sense that our democracy and our economy may be crumbling from the bottom up, slowly but methodically. Not by a directed sense of purpose, but rather by our obsessively looking the other way.

Outwardly, those in government corridors, put on a stern and concerned face when confronted with financial matters that go wrong. They give us solace and point to our economic stability, point to our formidable banking institutions, and of course our stable democratic government. But are we rotting through incompetence, disinterest and a lack of investigative desire? Are we being effected not suddenly by a heart attack of malfeasance, but instead a slow eating cancer of general ineptitude.

Fraud, even in its most basic clear cut form is continually around us. Just consider that in a recent survey by Price Waterhouse Coopers it was estimated that half of the companies in Canada report being victims of fraud. When the Covid “waves” hit, how do we ignore and countenance that during the much celebrated Liberal CERB benefit program over $500 million was paid out to persons who were multi-collecting; from CERB, the Canada Revenue Agency, or the Employment and Social Development Canada office.

In terms of just the CERB payments, a recent House Finance committee heard further discouraging testimony that the Auditor General can not even look into the fraudulent obtained payments– for another year– even though they have known about it since 2020. The CRA confirmed that they are not expecting to make a dent in the wrongful payments until 2023, probably about the same time that Federal government workers will actually have to go back to the office. Apparently, we are waiting on the Canada Revenue Agency to get their act together.

Is it a minor problem? You decide. CERB was budgeted to cost $24 billion –it came in at $81.6 billion. In July 2020 Employment and Social Development Canada knew already that $442 million was sent out to 221,320 people in the form of those double payments.

One must always “follow the money.” Where the money goes is where you will find people looking to take benefit from it and see it as an opportunity. The structure of these particular Covid programs created enticing pots of gold. Very little deception was needed.

Since Canada seems “reluctant” to undertake any kind of investigation or go after those that ripped the system, one wondered whether this was a North America wide malaise. Did this exceptional level of forgiveness for the under-handed equally permeate all of the liberal governmental establishments in the U.S. and Canada. As it turns out the American response to the potential for fraud that they too are now uncovering was in fact distinctly different.

In fact, the contrast in our two countries, even though they were running similarly intended programs is startling. If we reflect on the differences in approach and put Canada up to the mirror, our fermenting complacency boldly looks back at us.

Of course, the money amounts in the U.S. are staggering due to the size of their population versus Canada. The PPP as it was called in the U.S. was almost a carbon copy to that of CERB in Canada. (PPP was the Paycheck Protection Plan) The Canadians and the Americans also had more than one plan in effect. For instance, the U.S. also had the Covid disaster relief fund, and the unemployment relief fund.

Before one looks at the numbers, remember that the overall justification in Canada was at the onset of Covid, also echoed by the U.S. government. In Canada sacrificing “security for speed”, getting out the cheques to the populace was more important than the “security” of the system and the quick dispensation of the monies. The U.S. authorities also admit that most of the money was and is, “unrecoverable”.

Unlike Canadians, the Americans are a little more harsh in their language. They have no hesitancy in saying the program was: ” an invitation to fraudsters”, and the “largest fraud in U.S history”. That according to the official who was overseeing the payouts.

The Americans estimate that 10% of the monies paid out under their PPP was fraudulent. (We have seen estimates in this country under CERB of up to 30%). The Americans paid out $800 billion, therefore they estimate that $80 billion was paid out to fraudsters.

In addition, they estimate that $90 billion at a minimum and up to a maximum of $400 billion was taken from the secondary unemployment relief fund. Another $80 billion from a third program, the Covid disaster relief fund. Interestingly, they estimate that at least 1/2 of the stolen funds from the unemployment relief fund were stolen by “international fraudsters”.

Unlike Canadians, the Americans seem upset. They have set up the Pandemic Response Accountability Committee which is headed by General Mike Horowitz. This group has been given a mandate of 10 years to pursue the fraudsters.

Their results so far are in their words “minimal”, with only 178 people “convicted” so far. One wonders if in this country in the last thirty years if we have charged that many with significant fraud. What the investigators have uncovered is that the size and scope of the fraud may be overwhelming, continually expressing surprise on”how blatant it was”.

Using AI programming they are now scanning over 150 million records to identify patterns of fraud, such as the gas station in Houston whose phone number was used for over 150 applications for PPP. The perpetrators are appearing and being charged in increasing numbers; David Hines in Miami took them for $3.9 million; another person $7.2 million, some spending their financial gains on Lamborghini vehicles and mansions. A California couple stole $18 million and eventually pled guilty– the husband getting 17 years in prison, while his wife got 6 years. Yes, in the U.S. they also go to jail.

They have found that the service provider BlueVine, who was contracted to help the government dole out the funds and gave out $4.5 billion bragged about processing applications in less than 5 minutes. They estimate that a stolen identity or a fraudulent single identity could translate into a possible $30,000 in possible claims and benefits. The perpetrators would steal legitimate company names from the internet, inflate the number of employees or create the employees and then apply for the business loans.

One of the more blatant fraudsters was Danielle Miller out of Boston. Taking names from the state website and applying for Covid relief loans allowed her in 40 minutes make $100,000.

There is another myth that is also now also being dispelled. In speaking with experts in the fraud industry and in talking with private businesses they are quickly finding that “trade offs between speed and security” is simply not true. As one person pointed out, if this were true, why wouldn’t large private industries with a consumer facing business and who featured rapid response; why are they not going bankrupt? They describe it as categorically “false” narrative that speed necessitates neglect and oversight.

Of course, maybe none of this could happen in Canada, maybe we are much too honest here.

Auditor General Karen Hogan released a report which included the fact that the Employment and Social Development Canada (ESDC) and the Canada Revenue Agency (CRA) “focused on delivering the benefit quickly…both organizations understood the rules…” and they “relied on applicants good faith”.

Let’s remember that the Canadian CERB program allowed anyone over the age of 15, who made a minimum of $5,000 in 2019, could apply for $2,000 for a period of 28 weeks; following an extension of the program in August 2020. If that was not enough, once the CERB ended for these folks, the government then directed them to a revamped Employment Insurance Program.

The Auditor General admitted that a “pre-payment screening structure could have been put in place” and that telling the government agencies to “ignore warnings or red flags” of fraud may not have been a good thing. The CRA did open a “snitch line”. The thinking must have been, if they couldn’t find the fraud, maybe the public could lead them to it.

The Canadian Anti-Fraud Centre by the end of January 2021 had 8500 cases of CERB related identity theft.

In a 2020 FINTRAC Report made public in November 2021, that the CERB program was “knowingly and actively defrauded ” by scammers, organized crime, and that payments were made to people engaged in illegal or suspicious financial activity”.

Have we learned anything? In 1991 in Vancouver, Murray Pezim was investigated for fraud, the classic pump and dump strategy in mining stocks. In 2022 the U.S. Securities firm (not the Canadian authorities) charged David Siddoo for employing the same system. In 2021 the Cullen Commission exposed billions of dollars in money laundering. Really, nothing has changed.

In this country we are structurally not set up to look for fraud, or any variation of fraud. And if we aren’t looking we are sure to never find anything. The RCMP were recently investigating Trudeau and the Aga Khan who were allegedly influence peddling through elaborate vacations– and lo and behold they found that there are no rules that really apply.

The RCMP which should be the first stop in large scale fraud investigations in this country, as an organization has proven itself time and time again as incapable in the field of economic crime. Investigations in this country are talked about in years, not days, weeks or months. The solution is either that this type of crime is pulled from their organizational mandate, or they need to be dismantled and re-built and resourced to 2021 standards.

Maybe, the general public is willing to let their rage to continue to bubble away just below the surface. The Liberals and the NDP are counting on it. Is it that we are so complacent, so ensconced in our own sphere of security and relative prosperity that we just shrug it off, politically helpless, morally and ethically spent.

Photo courtesy of Flickr Creative Commons by Ryan Steele – Some Rights Reserved

Systemic Corruption

Posted on by Pete Cross

Insidiously, it seeps just below the surface,  swirling in and around every level of the Canadian mosaic. Currents of malfeasance, some large, some small, quietly percolating. Lapping endless waves of cronyism, nepotism, parochialism, patronage, influence peddling, graft, and embezzlement. 

In some countries it is prevalent to the point of being part of a daily existence; places where all daily activities take into account the need to pay forward the corruption.  In the other more “privileged” or affluent countries, like Canada, we smugly point at those living in that third world of undeveloped and often corrupted governments as we shake our heads in disbelief at the levels of criminality. 

The problem with corruption, besides the obvious, is that the slow trickle of misconduct eventually begins to erode societal morals and principles. It begins to gnaw at the very bonds of society.  We, as a society, need to believe in the stability and honesty of a government and those that have been appointed to lead.  We hope that there is an inferred sense of fairness in the vital portions of our society. 

Without it, discontent with one’s position in that society begins to fester. Discontent is followed by disbelief—  one begins to question the “system”.  If doubt in the system gains a foothold, this further undermines the structural pins of decency and respect. 

There are some that contend that systemic corruption combined with the gradual extinction of the middle class is the biggest problem currently facing the democracies of the West. There are some that believe that if not addressed it could indeed prove fatal to our current system of government. 

After all the power of corruption is absolute. One only needs to watch the now besieged authoritarian government in Belarus. This corrupt government which has been led for 26 years by the authoritarian Alexander Lukashenko is now in retreat—the streets now teeming with violent protest. 

Lukashenko pronounced an election victory— one that was clearly rigged in his favour —proved to be a final and ultimate straw for the citizens of that country.  His government’s corrupt practises over the years has now launched daily protests of 200,000 people. As many as 7000 have been arrested and detained as he clings to power and calls on his ally Putin to come to his aid.  Europe’s “last dictatorship” is now in rightful peril. 

Clearly there are levels of corruption around the world. 

Tradingeconomics.com actually compiles a “corruption index” of countries. Belarus, surprisingly considering its problems, is only 66 on the list of 180, 1 being the best, and 180 being the worst. (Somalia has the distinction of being the worst and Denmark is listed as being the least corrupt country in the world)  

Canada is number 12 on the list. (We were 9th in 2016) but due to its slight deterioration Canada is now considered a country “to watch” alongside Saudi Arabia and Angola.

On the surface this seems like a good number, but how do we measure corruption in this country? Let’s consider some recent Canadian examples. 

The underground economy in Canada is estimated by Statistics Canada to be about $45 billion— $16 billion in Ontario alone. Current estimates suggest that this “irregular” economy may account from 10-25% of reported Gross Domestic Product, and that this illicit part of the economy is actually now growing faster rate than the GDP. 

In a poll a couple of years ago, a group of Canadian executives found that twenty per cent of these business leaders believed bribery and corruption were “widespread in this country”.

Recently, in British Columbia the Money laundering Inquiry is for the first time officially looking into what most people have known in this Province for a long time; that illicit funds have for many years been continually funnelled into real estate and high end vehicles; millions of dollars using the casinos as an easy conduit.  

Criminologist Stephen Schneider said that “while criminal organizations have traditionally laundered the proceeds of crime as part of their broader operations, separate money service businesses are now facilitating them”. He goes on to describe the Vancouver “model” which centres around “professional money laundering”. He flatly states that British Columbia is simply “an attractive place to do that”.

When describing financial crimes like securities fraud or stock market manipulation Schneider said that Canada “has never been very good at addressing them”. In summing up an overall picture he describes the obvious “low-hanging fruit” which is the street level drug trade;  but the real danger occurs “within commercial crimes that may be committed by corporations and private businesses that appear legitimate”.

Another recent example which is slowly falling from public view is the SNC Lavalin affair. We should remember that this large Canadian once reputable organization pled guilty to fraud for work in Libya and has now agreed to the paying of a $280 million fine. They were caught having paid $127 million in bribes and laundered millions to win contracts in Libya. A large chunk of that money, some $47 million was paid to Saadi Gadhafi, son of the late dictator Moammar Gadhafi.  Suffice to say that this Canadian company was playing with the upper echelon of the world criminal sphere. 

The RCMP in Canada has over many years systematically dropped the proverbial ball in terms of pursuing these “white collar” types. But this lack of effort can not be totally blamed on the police. The prosecution services, the financial regulators and the corporate world are at the very least guilty of astounding willful blindness. 

As an example, in 2008 and in 2014, the Financial Action Task Force, a relatively unknown but influential international standards setting body called out Canada for a “significant set of deficiencies” specifically regarding our ability to determine the “true owners of private corporations”. This is referred to by accountants as “beneficial ownership transparency” and is the key factor in tracking down financial criminal activity and corruption. Our collective blindness once again at fault.

Finding corruption is in fact quite easy. Just follow the money. Pots of money will always draw the flies, those perpetrators and opportunists along with the ethically challenged corporate insiders. 

The criminal hawks are continually circling. Let’s consider the recent CERB cheques in Canada.  They have gone out to 7.8 million individuals. Statistics Canada then quietly noted, that even though 7.8 million people benefitted “only 5 million Canadians -employees and self-employed people–either lost their jobs or began working less than half their normal hours”.  Even with limited mathematical skills one can easily calculate that this  leaves one with a potential of 40% of the claims being fraudulent. With the announcement of no due diligence required, the fraudsters had to be salivating. Sadly, it has become equally clear that many Canadians have no problem in trying to “rip” the system. 

This leads us to the reverberations out of the WE scandal in Ottawa.  This drew in our own Prime Minister, the Minister of Finance and the Chief of staff of the Prime Minister. 

The Finance Minister, whose daughter was working for WE, and the Prime Minister whose wife, mother and brother had all been paid by the WE brothers in some form— apparently didn’t even know enough about business practises to understand the concept of recusing themselves.  Their sense of entitlement blinded them in their own deceit.  

It was also revealed recently that the WE executives referred to Mr. Morneau as a “bestie” in some back and forth emails. This same Minister quickly remembered, while walking to the very Committee hearing, that he “forgot” to pay back $40,000 in expenses for two rather dubious trips. 

At the time of this blog, Mr. Morneau has now been pushed to the curb, but undeterred is applying for the job of the head of the Organization for Economic Cooperation and Development. One has to wonder how that that job application will skirt around a couple of sticky ethics investigations, but pay no mind, because the Prime Minister is going to vouch for him. 

Mr. Trudeau, for his part, in the style of a tin pot dictator has now “prorogued” the Canadian Parliament, stopping all the activities of Parliament until September 21st. An apt parallel would be if you imagined Trump shutting down the Mueller inquiry. 

It effectively shuts down the various Committee investigations that were going on involving WE and the Liberals. 

But what may be the most disturbing to this writer is the lacklustre enthusiasm for pursuing the offenders in this country. What is it about the citizens of this country where there is no outcry against the white collar criminals?  No outrage or demand for accountability. 

This is a country that applauds the Hells Angels on their toy run, turning our heads from viewing their daily practise of extortions, and torture.  Beatings and killings of the innocent and the promulgation of the sex worker industry or the drug trade is ignored, as long as there is a stuffed bear attached to their handle bars. 

There was a massive outcry in the United States, cameras traipsing behind mediocre actress Lori Loughlin who was convicted in a nation wide college entrance exam cheating scandal for her involvement in getting her  “gifted” kids into University. The U.S. and Canadian media coverage was endless. 

While in this country, businessman, philanthropist, BC Sports Hall of Fame and former CFL’r David Sidoo was found guilty in this same scandal of cheating to get his two sons into college in Boston. He paid $200,000  to have a professional test writer use false credentials to impersonate his two sons to write their SAT’s. He even flew the fraud artist in to write one of the high school exams for one of his sons. Has there been massive shaming, has there been any calls for his removal from the Hall of Fame? Crickets. 

Commissioner Lucki, meanwhile remains in seeming isolation,  effectively distancing herself from the Coronavirus and any investigation involving the Liberals.  One should not expect anything to come out of the Ottawa RCMP corridors in terms of any investigations of wrong doing while under her oversight.

Remember when Ms. Lucki was asked about the investigation of obstruction involving the Prime Minister and the SNC Lavalin controversy? She replied that the RCMP “takes all investigations seriously, and investigate to the fullest”. That was in September 2019.  

Ms. Lucki is proving herself to be a plodding one trick pony. Diversity is clearly her one and only issue. It will also likely prove to be her swan song.

So what does the future hold. Well, the only thing for sure is that Canada on the afore mentioned corruption index is likely to slip further down the ratings. 

Canadians are now becoming a bit closer to Belarus than to Denmark. 

Photo courtesy of Christopher Dombres via Flickr Commons – Some Rights Reserved