The Bank of Canada against Rocco Galati, a historic lawsuit

Laurine Benjebria, translated by Darragh Hayes-Moriarty
13 Octobre 2015

On behalf of the collective COMER, constitutional lawyer Rocco Galati initiated a lawsuit against the Bank of Canada in 2011. This historic legal action builds on constitutional issues: Rocco Galati and COMER accuse the Canadian central bank of borrowing from private banks and not to resorting to loans at low interest rates. The lawsuit filed against the Bank of Canada accuses the bank of diverting from its primary objective and harming Canadian citizens. There has been feedback on a historic battle passed over by the main Quebec media.

Credit Rocco Galati, J.P. Moczulski-For Postmedia News
Credit Rocco Galati, J.P. Moczulski-For Postmedia News
It was in 1938 that the Bank of Canada was nationalized, adopting as a priority the principle that each of its loans serves the public good. According to the Banking Act and the Canadian Constitution, the Bank of Canada may authorize loans to federal and provincial governments so that they do not need to resort to intermediaries such as private banks. The loans granted to provincial and federal governments can represent up to one third of their annual budget, as long as the loan is paid the following year. Each year, the Parliament can exercise its power - to impose taxes for example, without having to explain to the House of Commons how its plans to spend its budget. So it is through a constitutionally required process that the government budget is assigned. This borrowing process among other things allowed Canada to fund the construction of the Trans-Canada Highway, the work of the Seaway St. Lawrence and the construction of universities in the 60s and 70s.

When asked by Le Journal International on June 29, Jean-Pierre Gueyie, a professor at the School of Management Science (ESG UQAM) said that the role of the Bank of Canada "is to in some way regulate the economy and, from this point of view, its policy is to be a lender of last resort. That is to say, when financial institutions have difficulties, they may resort to the Bank of Canada for funding. The institution lends money to banks that have liquidity problems and may not necessarily resort to the interbank market." From 1974, loans with low Canadian Bank's interest rate for government projects declined. For Rocco Galati and COMER Committee (Committee on Monetary and Economic Reform), this can be explained largely by Canada's membership in the Bank for International Settlements (BIS), making the Bank of Canada the only public bank in the G20 to be a member of the BIS.

“When Canada joined the Bank for International Settlements (which is like a central bank for banks), the Bank of Canada was forced to align with the BIS policy of loans with interest. The Bank for International Settlements tries to put in place mechanisms to ensure that the OECD countries are not found in systemic issues. We will try to coordinate policies to avoid problems in the financial system, and if these problems exist, try to avoid them becoming systemic as happened in the 2008 financial crisis,” Jean-Pierre Gueyie told us in June 2015. It is this same alignment that Rocco Galati and member of the COMER committee criticize, accusing the Bank of Canada of not acting in the interest of the public good but that of international private banks. At a lecture given April 28, 2015 at the University of Quebec in Montreal, Ann Emmett, President and co-founder of COMER lamented that "today, nearly 97% of our money is created by banks private. They have the profit, we have debt that is there to justify the agenda of neo-liberal policies. When the system fails, we are the ones who get them out of trouble."

A lawsuit on constitutional grounds

Based in Ontario, the collective COMER is a research group studying the Canadian currency reforms. According to committee members, the current economic system and monetary policies are the main causes of financial instability in recent decades. The group has focused for some years on the borrowing process of the Bank of Canada, including seeking to understand how Canadian Bank changed its policy on borrowing at low interest rates. The Committee advocates a mixed economy, notably through a return to the original missions dictated by the Bank of Canada Act law. Adopted in 1938, this federal legislation allowed the creation of the Bank of Canada, in the heart of the current Canadian banking system. Since 2011, with the participation of Canadian Lawyer Rocco Galati, the committee has hounded the Bank of Canada through the Supreme Court.

Credit: PC/Adrien Wyld
Credit: PC/Adrien Wyld
The constitutional lawyer, who objected to the appointment of Justice Marc Nadon to the Supreme Court by Stephen Harper and the Bill C-51 extending the mandate of the Canadian Security Intelligence Service, said during the conference COMER April 28, 2015 at UQAM that “"Not only has the government abandoned its constitutional duty to govern, but it has transferred it to international private banks which corresponds to an abandonment of its sovereignty." The purpose of this legal action is to return to the primary mission of the Bank of Canada, being able to provide loans at low interest rates to the Canadian government. But for any State, the right to borrow interest-free or at very low levels, is a right to issue its currency without private intermediary. It is therefore, with this case, a legal battle of major importance for both the federal and provincial governments and for the Canadian taxpayer. Even before the collective and Rocco Galati are heard by the Supreme Court of Canada, the Canadian government made a motion to strike out the statement by Rocco Galati, a request accepted by the Court.

In other words, the Canadian government argued that the Supreme Court did not have the right nor the expertise nor the means to listen to the cause of the Ontario research group. After appealing, Rocco Galati managed to have his case heard before the Supreme Court of Canada. On January 26, 2015, the judges of the Supreme Court have argued in favour of the plaintiffs, the COMER and Rocco Galati, forcing even the Canadian government to provide substantial evidence on the subject. While the prosecution by Rocco Galati and COMER at first demanded a dollar per Canadian citizen, as a class action, the Court subsequently suggested to the constitutional lawyer to abandon this part of the trial in order to focus solely on constitutional matters, including issues of compliance of the budget process. On May 13, 2015, the Canadian government told the committee that it would appeal against the decision of the Court. Rocco Galati once again won his case in this long legal battle that is just beginning.

An overhaul of the financial system in Canada

By filing a complaint against the Ministry of Finance, the Ministry of National Revenue, the Attorney General of Canada and the Bank of Canada, the COMER committee is seeking a declaration from them stating that they have failed in their statutory and constitutional mission. This legal battle led by the Ontario lawyer Rocco Galati may lead to a major impact on the Canadian and provincial financial system. Mr. Galati and COMER research group want the Bank of Canada, which belongs to every Canadian taxpayer, to lend to the Canadian government with lower interest rates for the public good, under democratic control of the borrowing priorities. According to Rocco Galati, the policy change by the Bank of Canada participated in the debt of Canada, costing nearly a billion dollars in interest on the national debt in 2012.

For Professor Jean-Pierre Gueyie, the action brought by the COMER may, however, have adverse effects on economic activity: "This lawsuit could cause a minor error in the current system. As the system currently works, when the government wants to carry out work for example, it is financed by paying interest on the cost of financing. And it allows households, banks and the institutions to seek money and pay interest through this very mechanism. If the Bank of Canada funds the government without interest, we take away from all this wealth creation. As this wealth is for all Canadians, this would amount to a sleepless game. There would be revenue of the financial system that would be lost." The consequences of this overhaul of the governments of the funding mechanism remains a debate within the community. And on January 26, 2015, the three judges of the Supreme Court of Canada ruled in favour of Rocco Galati and COMER. The Supreme Court thus affirms that the Bank of Canada must be able to issue interest-free money for the needs of provincial and federal governments.

A lack of attention from major Quebec media

Credit RR
Credit RR
Very few Quebec media were interested in this lawsuit that could well upset the Canadian financial system. While the HuffingtonPost Québec and the independent news website 99% Media have published a few articles on the subject in recent years, Canada's major media outlets such as Radio-Canada and La Presse have not published any article on the subject since 2011 . In a review of the Ombudsman of the CBC released on August 4, 2015, Pierre Tourangeau responds to complaints from some readers about the lack of media coverage of the trial of Mr. Rocco Galati. The ombudsman explains why: "Journalists and editorial managers of ICI CBC felt that the subject, among all the subject which they have to choose from every day, did not have enough public interest to talk about it ". Pierre Tourangeau highlights the length of the legal process and the numerous appeals made by the two parties that reveal whether a trial would indeed take place. The Ombudsman of the CBC French service also emphasizes that "the actions of COMER and Mr. Galati itself are “frivolous" according to some constitutionalists, not founded in law for others."

In the rest of Canada, CBC and Toronto Star have, a few times, informed Canadians about the status of the trial. This legal battle nevertheless represents a major change in the financial policy and the Canadian financial system. The lack of information about the trial, as well as about the research of COMER, contributes to people underestimating the scope of such legal action. In the review of COMER Committee for editing from May to June, Ann Emmett reports that renewed media attention was not seen until spring 2015, as a result of the decision of the judges of the Supreme Court: "at last, the mainstream media has begun to report on the issue"