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The “Dirty Dozen” Loopholes in Canada’s Federal Government Ethics Law

Posted on by Bradford

Lapdog Federal Ethics Commissioner Has Created Some of the Loopholes, and Failed to Enforce the Law Effectively since 2006

(Democracy Watch: October 2025)

Almost impossible to be in a conflict of interest because of huge loopholes in law

The federal Conflict of Interest Act (COIA) is a law containing ethics requirements for the most powerful public office holders in the federal government (the Prime Minister, Cabinet ministers, their staff and all top government officials and Cabinet appointees (except ambassadors and federal judges)).

The COIA is a loophole-filled, sad joke that, because of huge loopholes in the law, doesn’t apply to 99% of the decisions and actions of these office holders.  It really should be called the “Almost Impossible to be in a Conflict of Interest Act”.

As the loopholes set out below show, the COIA is much weaker than the ethics requirements that apply to the least powerful federal government employees in the Values and Ethics Code for the Public Sector and the Directive on Conflict of Interest, which together require all employees to act with integrity at all times in a manner that will bear the closest public scrutiny, and prohibit them from participating in any decision or action when they have even an appearance of a conflict of interest of any kind.

It is simply perverse that the most powerful politicians and office holders in Canada’s federal government have much weaker ethics requirements and standards than the least powerful public servants.

PM Code – strict, strong rules, but not enforced

There is also the Prime Minister’s Code and, among other strong and strict rules, it also requires the Prime Minister and Cabinet ministers to be honest, and act with integrity at all times in a manner that will bear the closest public scrutiny, and it prohibits them from participating in any decision or action when they have even an appearance of a conflict of interest of any kind (these measures essentially define what would be a violation of the COIA measure that prohibits “improperly” furthering one’s own or others’ interests (in ss. 4, 8 and 9).

The Ethics Commissioner has stated several times that the PM and Cabinet ministers are required to comply with this Code, but usually the Commissioner has not enforced that requirement.  Also, it is unclear if current Prime Minister Mark Carney is going to cancel, weaken or maintain the PM Code.  Click here to see details. 

The real solution, which any PM would do if they actually wanted Cabinet ministers and top government officials to be required to be ethical, is to add the ethics rules in the Code to the COIA so they are clearly required by law and enforceable.

Ethics enforcement is partisan, political, weak, secretive, slow, ineffective and largely unaccountable

Although the ethics rules for federal government employees are much stronger than for top politicians and government officials, the enforcement systems for the COIA and the rules for federal government employees (as well as for the ethics rules for MPs and senators) are all equally partisan, political, weak, secretive, slow, ineffective overall and largely unaccountable.

As the “dirty dozen” list below details, some of the loopholes have been created through negligently bad enforcement by the federal Ethics Commissioner since 2006, including by current Commissioner Konrad von Finckenstein, who buried eight investigations and created three new loopholes in his first six months as Commissioner.

Click here to see key changes needed to strengthen the enforcement of these and other key federal democracy laws, and click here to call for these key stronger enforcement measures, and click here to support efforts to win these changes.  See a summary list of key enforcement changes further below.

Key changes needed to close prevent, prohibit and penalize unethical activities by the PM, Cabinet ministers, their staff and appointees

The 12 key changes needed to close key loopholes and make the COIA actual effective at preventing conflicts of interest and unethical gift- and favour-trading are as follows (similar changes to close similar loopholes are needed for the MP Code and the Senate Code, and in every provincial, territorial and municipal ethics law across Canada):

1. Add a rule to require all public office holders to tell the truth to stop the misleading spin that regularly and fatally undermines reasonable policy debates and discussions, with high fines for misleaders. Canada needs political leaders, not misleaders.

2. Close the huge loophole in the definition of “private interest” (in ss. 2(1)) to clearly prohibit participating in any decision-making process when in a conflict of interest, not only decisions that are specific.

Currently, the COIA says that an office holder can never be in a conflict of interest when they are making a decision of “general application” or that applies to them as part of a “broad class of persons” or entities.  In other words, they can only be in a conflict of interest when they are making a decision that applies specifically to one person, business or organization or a small group of people, businesses or other types of organizations.

This is a huge loophole because 99% of the decisions and actions of office holders apply generally or to a broad class of people or entities.  As a result, the COIA currently doesn’t apply to 99% of decisions and actions that office holders participate in, and that allows them to take part in decisions when they, their family or friends can profit from the decision.  This loophole is the main reason the COIA should be called the Almost Impossible to be in a Conflict of Interest Act.

Until the “general application” and “broad class” loopholes are removed from the COIA, it will make no difference if the COIA is changed to prohibit office holders from being in an “apparent conflict of interest” as Ethics Commissioner von Finckenstein recommends on p. 8 of his 2024-2025 Annual Report.  Prohibiting apparent conflicts is an important change, but the loopholes must be closed to make that rule actually apply.

As well, the Ethics Commissioner recommends on p. 9 of his report that the “broad class” loophole in the COIA be expanded to match the larger loophole in the MP Code.  This is a very bad idea – loopholes need to be removed, not expanded.

In addition, the COIA should also be extended to cover the private interests of extended family and friends of office holders (since 2006, the Ethics Commissioner has not established a consistent definition of “friend”).

3. Prohibit office holders from having investments in businesses.

The Parker Commission recommended banning investments (pages 343-361 (esp. 360-361)) way back in 1987 because it is the only effective way to actually prevent the conflicts of interest caused by investments.  Politicians, public officials, governments and political parties across Canada have all ignored Justice Parker’s recommendations ever since then because they all want to be allowed to secretly profit from their decisions.

Currently, the COIA has a loophole that allows office holders to place investments in a “not blind” trust (see details in #4 below) and another loophole (in s. 20) that allows secret “exempt assets” which include investments in: some mutual funds; RRSPs; RESPs; university, hospital and other public sector debt; annuities and; life insurance policies.

It’s true that some of these investments are not fully “controlled” by the public office holder, but if an office holder invests in a mutual fund (or exchange-traded fund (ETF)) that is focused on a specific industry (for example, the Canadian financial industry) or on big businesses generally in Canada, they know that the fund will own shares in companies in that industry or in those big businesses, and so they have a direct financial conflict but are allowed to keep it secret from the public.

In addition, the COIA has another loophole (in ss. 27(10)) that allows Cabinet staff and top government officials to secretly own so-called “minimal value” investments in businesses they regulate or make decisions about.  Truly incredibly, last year Ethics Commissioner Konrad von Finckenstein doubled from $30,000 to $60,000 the allowable value of these investments, and also specifically allowed members of the Canadian Energy Regulator (CER) to invest in exchange-traded funds (ETFs) and mutual funds that own shares in energy companies, because the Commissioner believes that $60,000 of shares is a “minimal” investment (even though $60,000 is almost double what an average Canadian earns each year), and that ETFs and mutual funds do not cause financial conflicts of interest.  Click here to read the Commissioner’s bizarre definition of financial conflicts of interest (see #3 re: Doubling the minimum value exemption and #4 re: CER appointees’ investments).

As well, on p. 9 of his 2024-2025 Annual Report, Ethics Commissioner von Finckenstein has recommended the very bad idea of weakening the investment rules in the COIA even more to allow the PM, Cabinet ministers, their staff and top government officials to secretly own ETFs because, again, he believes that ETFs don’t cause a conflict of interest, even though they clearly do if the ETF is focused on a specific industry, or generally on business sectors regulated by the federal government.

Ethics Commissioner von Finckenstein, and some other commentators, claim that it would be too much to require new office holders to sell investments in businesses, as they would have to pay taxes on capital gains from selling their investments.  A simple fix for this is to allow them to sell their investments without paying tax on them (or paying a much-reduced tax rate) in return for their public service.

What could the PM, Cabinet ministers, their staff and top government officials do after selling all their investments?  They are paid well compared to most Canadians, in the top 1-5% of annual salaries, and they have among the most generous benefits and pension plans of any employees in Canada.  So, instead of enriching themselves further through investing in private businesses that cause financial conflicts of interest that taint their decision-making and policy-making, they can buy government bonds or guaranteed investment certificates or other similar financial products that are not connected to any specific business, and that offer a fixed rate of interest for the time period that they remain in office, and then when they leaves office they can again invest in shares and mutual funds and other financial products for investing in businesses.

4. Ban the use of a so-called “blind” trust because they are not blind, and actually require selling investments (which is what “divestment” means).

Putting “controlled asset” investments like stocks, mutual funds in a blind trust is currently allowed under s. 20, clause 27(1)(b) and ss. 27(4) to (7) of the COIA. The 1984 Starr-Sharp Task Force on Conflict of Interest, and the 1987 Parker Commission (pages 343-361 (esp. 360-361)) both recommended against blind trusts because they are a sham façade that hide and do nothing effective to prevent or prohibit financial conflicts of interest.  A so-called “blind” trust isn’t blind at all because:

a)  the office holder knows what stocks and other investments they put in the trust;
b)  they chose their own trustee (ss. 27(4));
c)  they are allowed to give the trustee instructions such as don’t sell anything (ss. 27(5)), and;
d)  the trustee is allowed to give the office-holder regular updates on the trust (clause 27(4)(g)).

5. Ban the use of so-called “conflict of interest screens” or “ethics screens” because they are smokescreens that hide the fact that office holders participate in almost all decisions that affect their and their family’s and friends’ private interests.

The federal Ethics Commissioner’s website misleads the public and the media because it says that a “conflict of interest screen” includes a statement from the public office holder saying that they agree proactively “to abstain from any discussions, decisions, debate or votes concerning the matter that forms the subject of the conflict of interest.” The technical legal term for this is to “recuse” oneself from a decision-making process, and is called a “recusal”.

In fact, as can be seen in both Prime Minister Mark Carney’s ethics screen statement and Cabinet minister Daniel LeBlanc’s statement (among many other federal screen statements), their screens allow them to participate in discussions, decisions and votes “of general application” or that apply to a “broad class” (group) of people or entities, as long as the private interest affected by the decision is not “dominant” or “disproportionate” in the broad group.

As described above in point #2, this is a huge loophole in every ethics screen (and in all the ethics rules in the COIA) because 99% of decisions made by office holders apply generally or to a broad group. Because of this huge loophole, a so-called “ethics screen”, and the COIA overall, are actually smokescreens because they make it seem like the office holder will not participate in decisions when they have a conflict of interest but, in fact, because of the huge loophole they continue to secretly participate in almost every decision.

The first federal Ethics Commissioner Bernard Shapiro invented “ethics screens” in 2004 because a requirement for public disclosure by a public office holder of the details every time office holders recuse themselves didn’t exist in the ethics code at that time.  Commissioner Shapiro recommended in several reports that public disclosure of every recusal be required.

When the code was enacted as the COIA in 2006, public disclosure of the details and reasons for every recusal was clearly required, with no exceptions, within 60 days after each recusal (ss. 21, 25(1) and clause 26(2)(b)).  However, the second Ethics Commissioner Mary Dawson ignored this requirement and continued using ethics screens to hide the fact that office holders were almost never recusing themselves.  Ethics Commissioner Mario Dion, and current Ethics Commissioner von Finckenstein, also continued using ethics smokescreens.

6. Change s. 7 of the COIA to prohibit office holders from giving preferential treatment to anyone, especially anyone who has given them a gift or assisted them in any way (currently s. 7 only prohibits giving preferential treatment to someone or any entity based on the person who represents them/lobbies for them).

This change would not mean that office holders would be prohibited from making a decision that favours one stakeholder over another (as most decisions do in one way or another), it would just mean that they would have to use a decision-making and public consultation process that gives all stakeholders an equal opportunity to communicate and meet with the office holder, and be listened to, before the office holder makes their decision.

7. Change the gifts and benefits rule to ban the PM, Cabinet minister, their staff and top government officials from accepting anything from anyone who is trying to influence their decisions because even small gifts influence decisions.

Currently, the COIA allows gifts from relatives and friends even if the relative or friend is a lobbyist (clause 11(2)(b)).

8. Require office holders to disclose in the Public Registry their assets and liabilities worth more than $1,000 (the current disclosure requirement is only for liabilities worth more than $10,000, which is much too high), and to disclose details about their past five year’s work before they became an office holder to make it easy to track which organizations and issues they have ties to, and to disclose which members of their extended family (and which friends) they have close relationships with including being aware of their business, investments and other private interests.

9. Extend the cooling-off period in the COIA (ss. 35-42) during which an office holder is prohibited from contacting the government from to 2 to 5 years, and longer if a conflict of interest still exists, with no exceptions.

Prohibit the Prime Minister, Cabinet ministers and their senior staff, and top government officials and Cabinet appointees from communicating with their former colleagues and government officials for a sliding-scale time period of 2 to 5 years after they leave depending on what positions and committees they served in and how close their relationships are with Cabinet ministers, officials etc. (and longer if a conflict of interest still exists), and require them to disclose their post-activities online during this time period in a searchable database (the current “cooling-off” period is only 1-2 years).

10. Clarify the measures in the COIA (ss. 33-34) that prohibit passing on secret information you learned while in public office and taking advantage of your former public office to make it clear that a former public office holder is prohibited from doing any work or taking any job where they would clearly be in a position to pass on secret information or give advice based on secret information they learned while in office.

11. Extend the COIA and/or MP Code rules to cover federal political party leadership contestants, and MPs as soon as their election is confirmed by Elections Canada, to prevent unethical decisions and actions even before they are appointed to Cabinet.

12. Establish a sliding scale of mandatory, significant penalties for violating the key ethics rules in the COIA.  There currently are no penalties for violating the key ethics rules in the COIA.

The only penalty is a meaningless fine of up to a maximum of only $500 for failing to disclose assets and liabilities accurately and on time (ss. 52-62).  To discourage violations, mandatory, significant fines should be established on a sliding scale depending on the seriousness of the violation and the annual income and net worth of the office holder (so better paid, wealthier office holders pay a higher fine to discourage them equally from violating the law, given they have the finances to pay a higher fine).  For the most serious violations, the office holder should automatically lose their public office position and be barred from public office for a significant time period.

In contrast, Ethics Commissioner von Finckenstein only recommends on pp. 9-10 and 36 of his 2024-2025 Annual Report that the maximum fine be increased to $3,000, which is still a meaningless amount for Cabinet ministers and top government officials who all make more than $200,000 annually.

Summary of Key Changes Needed to Make Political Ethics Enforcement Effective

  1. Establish a fully independent, fully non-partisan committee to conduct a public, merit-based search for short list (1-3) qualified candidates for ethics-related enforcement positions, and then have an all-party committee make the final choice (with no possibility of re-appointment as that gives the enforcer an incentive to please office holders by letting them off when they violate the rules).
  2. Require the federal Conflict of Interest and Ethics Commissioner, and the Senate Ethics Officer, to regularly conduct an unannounced audit of a randomly selected sample of office holders’ financial statements and activities.
  3. Require the Commissioner and Officer to publish online binding interpretations of every measure in the COIA, MP Code and Senate Code with examples of real situations, and to publish online a summary of the Commissioner’s advice each time advice about a new situation is given to any person covered by the COIA or a code, so everyone knows exactly what the law prohibits.
  4. Require all office holders to take a formal training course when they first start their position, and annually.
  5. Add new sections to the COIA, MP Code and Senate Code to give members of the public, who employ and pay all office holders, the right to file a complaint with the Ethics Commissioner and Senate Ethics Officer.
  6. Add new sections to the COIA, MP Code and Senate Code to require the Commissioner and Officer to investigate and issue a public ruling on every complaint and situation s/he becomes aware of, and to impose a sliding scale of penalties depending the seriousness of the violation.
  7. Add new sections to the COIA, MP Code and Senate Code giving any member of the public a clear right to challenge any decision by the Commissioner or Officer in court.

Click here to see key changes needed to strengthen the enforcement of these and other key federal democracy laws, and click here to call for these key stronger enforcement measures, and click here to support efforts to win these changes.

Join the call for these and other key government ethics changes across Canada at Democracy Watch’s Government Ethics Campaign

Many other changes are needed to other federal laws to ensure democratic good government, including: