Skip to main content

All too often, victims of white-collar crime have seen their life savings wiped out only to watch the people responsible walk away. Sadly, making sure that fraudsters pay the price has not been a priority for the Canadian justice system, which has earned the unenviable reputation of being soft on investment fraud - and rightly so. Despite the best efforts of the Crown and law enforcement, Canada has simply not allocated the resources necessary to effectively investigate and prosecute white-collar crime.

Recently introduced legislation, Standing Up for Victims of White-Collar Crime Act (Bill C-21), seeks to address this problem by imposing tougher sentences on convicted fraudsters. Where the proceeds of the crime exceed $1-million, individuals who are convicted will be subject to mandatory minimum sentences of two years. Also, sentencing judges will be required to consider making a restitution order to compensate victims of the crime.

These are well-intentioned measures meant to strengthen the justice system's ability to combat large-scale frauds. But without a commitment to a more comprehensive approach, these changes will only impose additional obligations on the current enforcement structure, which is already overburdened and under-resourced.

Ironically, the introduction of Bill C-21 may lead to fewer cases going forward. Experience in the United States has taught us that the effect of mandatory minimum sentences is an increase in the number of trials and a reduction in the number of guilty pleas. Second, the Crown will be required to quantify the proceeds of a fraud due to the million-dollar threshold, something it's not well-equipped to do.

Finally, the current system doesn't have the ability to deal with the distribution of assets of a fraud among a large number of victims with varying claims. This will put additional strain on the system, unless more resources are allocated to Canada's prosecutors. Cases that do go forward will be even lengthier, and the delay inherent in complex frauds may result in even more cases being withdrawn because of the risk of constitutional infringement of the right to a speedy trial.

The proposed legislation also leaves victims of fraud with the impression that they will get their money back through the criminal sentencing process. But such a belief is misguided. While the draft legislation requires a sentencing judge to consider issuing a restitution order, it does nothing to change the fact that, by the time law enforcement is involved, the money has often long disappeared.

More attention should be paid to how Canada can give investigators and prosecutors effective tools to be able to step in and seize the assets of fraudsters before those funds vanish. Currently, the only effective method to obtain restitution is through the civil courts.

Fraudsters are constantly refining their techniques, seeking new ways to deceive a greater number of Canadians into handing over their savings. The shortcomings of Bill C-21 underscore the importance of having effective enforcement mechanisms in place for this type of legislation to have its intended impact. It's time for law enforcement to refine its own techniques and confront fraud with specialized prosecutorial and investigative resources. A national securities regulator, staffed with a specialized enforcement team, would be better suited to tackling these issues.

Canada is long overdue for the introduction of a national enforcement agency whose primary concern would be the detection and prosecution of white-collar crime across the country. A national securities commission would bring to bear specialized resources that would protect Canadian investors, with the expertise required to quantify, trace and freeze the assets of a fraud, as well as provide a more appropriate mechanism for distributing proceeds of fraud back to the victims.

While some of this work is currently done by the securities regulators of the provinces and territories, there's no effective mechanism for compensation of the victims, and an enormous amount of duplication in investigation and enforcement efforts. A federal regulator would have the jurisdiction to staff its enforcement division with specialized Crown prosecutors with full recourse to the provisions of the Criminal Code and the proposed National Securities Act.

There are some encouraging signs that Canada is working toward this approach. In fact, the proposed securities legislation's criminal provisions are almost identical to the proposed changes under Bill C-21.

As long as Canada remains the only G20 member without a centralized regulator capable of pursuing fraudsters across provincial boundaries, the fraudsters will stay several steps ahead of the justice system. While Bill C-21 may help to change the perception that Canada is soft on financial crime, on its own, it will do little to change the reality.

Lincoln Caylor is a partner at Bennett Jones LLP in Toronto, practising commercial litigation with an emphasis on fraud. Joseph Groia, a principal of Groia & Co. Professional Corp., is a former director of enforcement for the Ontario Securities Commission.