Federal Court of Appeal suggests former Ethics Commissioner wrong to allow Morneau to secretly own family shares

Photo credit: Andrew Balfour

Today, Democracy Watch released details of the Federal Court of Appeal (FCA) ruling it received last Friday in its case reviewing former Ethics Commissioner Mary Dawson’s February 2016 decision into Finance Minister Bill Morneau secret family shares. More specifically, Dawson allowed Finance Minister Bill Morneau to continue to secretly own $30 million of shares in Morneau Shepell Inc., his family’s company, after he became minister.

Ethics Commissioner Dawson decided that because Minister Morneau had set up an investment scheme indicating he owned his shares in Morneau Shepell Inc. through two companies, one in Ontario and one in Alberta, he therefore owned the shares indirectly and so was not required by the rules in the Conflict of Interest Act to divest them by selling them or putting them in a so-called blind trust.

The Act requires any “controlled assets” to be “divested” by being sold or placed in a blind trust (sections 1720 and 27(1)), with a public statement issued detailing any divestment (subsection 26(2)(a)). The Actalso contains an “anti-avoidance” measure that prohibits Cabinet ministers and senior government officials from taking any action to circumvent the requirements of the Act (section 18).

The FCA’s ruling says whether Ethics Commissioner Dawson’s decision was correct “is a genuine issue of public importance” (para. 16). The ruling then states that the Conflict of Interest Act’s rules concerning divestment of assets like the shares Minister Morneau owned “is open to a broader interpretation” than Ethics Commissioner Dawson used that “could in effect make the divestment requirement in section 17 applicable to assets that are indirectly held” like Morneau’s shares were held (para. 17).

“The court’s ruling strongly suggests that Ethics Commissioner Dawson was wrong to allow Finance Minister Morneau to continue to secretly own $30 million in shares in his family’s company after he became minister,” said Duff Conacher, Co-founder of Democracy Watch and Adjunct Professor of Law and Politics at the University of Ottawa. “Hopefully the ruling will be enough to stop the Ethics Commissioner from ever allowing another Cabinet minister or top government official to own shares or have investments in any company through an investment scheme like the one Minister Morneau set up.”

The FCA’s ruling says that it didn’t issue a full ruling because Minister Morneau sold his shares making the situation moot (para. 12), a conclusion Democracy Watch argued against. The court suggests Democracy Watch could file another court case challenging an Ethics Commissioner ruling about another Cabinet minister or senior government official who has an investment scheme like Morneau that has been secretly approved by the Ethics Commissioner, and who has not yet sold his/her shares (para. 18).

Democracy Watch finds this part of the ruling to be quite strange, given that the FCA acknowledges that the Ethics Commissioner’s decisions like the one made about Morneau’s shares are “shielded from public view by confidentiality” (para. 11). As a result, how would Democracy Watch or anyone ever know that the Ethics Commissioner had approved another minister or official owning shares through a secret investment scheme like Minister Morneau had?

Democracy Watch is considering appealing the FCA’s ruling to the Supreme Court of Canada because of this strange, deeply flawed part of the ruling.

In light of the FCA’s ruling, Democracy Watch has sent a letter to new Ethics Commissioner Mario Dion asking him to disclose if there are any other Cabinet ministers or government officials covered by the Actwho own shares or have investments directly or indirectly in any company and who have not placed those shares into a so-called blind trust.

While it is public that Prime Minister Trudeau owns shares in many companies, as do Ministers Bennett, Brison, Champagne, MacAulay, and Senator Harder and dozens of top government officials – all of them have put their shares into a so-called blind trust that has been publicly declared. It is a secret whether any other ministers or officials own shares that are not in a so-called blind trust – only the Ethics Commissioner and the minister(s) and/or official(s) know.

“Democracy Watch calls on Ethics Commissioner Dion to disclose immediately if he is allowing any Cabinet ministers or government officials to own shares or have investments in any company directly or indirectly without putting them into a publicly declared blind trust,” said Conacher.

If there are any who own shares or investments, Democracy Watch expects that they will sell their shares or investments right away (just like Minister Morneau did) before Democracy Watch can file a court case challenging the Ethics Commissioner’s decision to allow them to own the shares. Again, that is why it is so strange that the FCA’s ruling suggests that Democracy Watch could bring another “live” case to court.

Because of these flaws and loopholes in the Conflict of Interest Act, Democracy Watch called on the House Ethics Committee when it reviews the Act this fall to recommend many changes to strengthen rules, enforcement and penalties. For example, blind trusts are a sham and should be banned, as the Parker Commission recommended in 1987, because the Cabinet minister or government official knows what assets they place in a blind trust, and they choose the trustee and are allowed to give the trustee general instructions (under subsections 27(4) and (5) of the Act).

As well, the biggest loophole in the Act is that Cabinet ministers and senior government officials are allowed to take part in debates, discussions, votes and other decision-making processes even when they will profit from the decision, as long as the decision applies generally (the loophole is in the Act’s subsection 2(1) definition of “private interest”). About 99% of Cabinet minister and top official decisions apply generally, so the Act does not apply to 99% of the decisions ministers and top officials make.

Cabinet ministers and officials should be required to remove themselves from every decision-making process when they have even an appearance of a conflict of interest, as the Parker Commission also recommended in 1987.

“So-called blind trusts don’t prevent conflicts of interest because the Cabinet minister or government official knows what they have put in the trust, and so the House Committee must recommend that blind trusts be banned and that ministers and officials sell their shares and other investments, as the Parker Commission recommended in 1987,” said Conacher. “To prevent conflicts of interest if a minister or official can’t or doesn’t want to sell their shares or investments because they are part of a family company, the House Committee must recommend that the minister or official be required not to participate in any way in any decision-making process that affects the company directly or indirectly, as the Parker Commission also recommended in 1987.”