In the aftermath of revelations about Finance Minister Bill Morneau's apparent conflict of interest, an obvious question has emerged: how do we prevent similar scandals and see to ethical government decision-making in the future?

The key to good government is ensuring that politicians are prohibited from making decisions and spending public money helping themselves (or their relatives and their friends, or in protection of their investments or properties).

That means having laws, like Canada's federal ethics law, that require public office holders to recuse themselves from discussions or decisions where they could potentially see significant material benefit.

Section 27(1) of the Conflict of Interest Act requires cabinet ministers to divest from his or her assets either by placing them in a blind trust, or selling them.

Ethics loopholes

However, it seems Ethics Commissioner Mary Dawson may have interpreted the law in a legally incorrect way, so as to create a loophole which has allowed Morneau and other cabinet ministers to own investments and other assets indirectly. Democracy Watch will soon file a court case challenging the ethics commissioner's decision.

In any case, what's already outlined in Canada's ethics law is clearly insufficient. It allows ministers and top officials to own mutual fund investments without even disclosing them publicly. And so-called "blind trusts" are really anything but, since ministers and officials can easily know what they own, especially since they choose their own trustee.

The only way to prevent the conflicts that are capturing headlines now is to require cabinet ministers and top government officials to sell their investments (as the Parker Commission 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.

Many people will argue that politicians shouldn't be penalized financially for seeking cabinet positions, but let's not forget that they're being paid a salary in the top five per cent. People who truly want to serve the public will have no problem with a requirement to cut ties with their private financial interests.

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

Disclosure for relatives

What about businesses or investments owned by the relatives or friends of cabinet ministers and top officials?

Canada's ethics law requires their spouses and dependent children to disclose their investments only to the ethics commissioner – they are not required to sell anything. But this isn't good enough: 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.

The current situation is all the more untenable because of ethics "screens" that make it seem like ministers and officials are stepping aside from making decisions, which have been used in lieu of blind trusts.

Should the government close the indirect holdings loophole in the Ethics Act?9:15

In fact, a huge loophole in ethics rules across Canada allows them to take part in decisions even when they have a financial interest and will potentially profit from the decision, as long as the decision applies generally.  For example, even if Finance Minister Morneau has investments through a mutual fund in one of Canada's big banks, he can still make changes to the Bank Act that will help increase the value of his shares since the Act applies generally to all banks.

Because the screens hide whether ministers and officials step aside, Democracy Watch believes the screens are illegal "smokescreens" and is challenging them in court.

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. But politicians choosing their own watchdog is a bad idea.

Ethics Commissioner Mary Dawson

The federal ethics commissioner should be selected by an independent commission, argues Duff Conacher. (Fred Chartrand/The Canadian Press)

Instead, a fully independent commission should be established to search for a short list of candidates for all watchdog positions (including judges).  The cabinet should then have to choose from the commission's short list.

The ethics commissioner must also be required to investigate and rule publicly on all complaints (currently the commissioner is allowed to ignore complaints from the public), and required to conduct audits to ensure everyone is following the rules (which she currently fails to do).

Stronger penalties

The penalties for violating the federal ethics law maxes out at $500 — a rather pitiful amount for violating some of the key principles that protect our democracy.  Mandatory high fines of at least one year's salary for a minister should be the penalty for all violations, which would roughly match the penalties lobbyists can face for violating the federal lobbying law.

We need to close the unethical loopholes that plague our federal cabinet. With that should come a fully independent, fully empowered, accountable and strong ethics commissioner who is capable of enforcing the rules and penalizing all violators. Canadians deserve no less, especially from a party that promised real change, and open and honest government.

This column is part of CBC's Opinion section. For more information about this section, please read this editor's blog and our FAQ.