Advances in technology, telecommunications and electronic fund transfer have brought about a marked increase in the amount of fraud perpetrated across borders. While Canada is not immune from these developments, combating fraud is a priority for Canada. Civil courts have extraordinary powers that assist victims in locating and preserving assets and evidence to ensure they are not dissipated or destroyed by fraudsters. This proactive assistance makes the recovery of a substantial amount of their losses a strong possibility for fraud victims. The criminal justice system is also looking to enact measures to deter potential frauds and protect potential victims.

Common International Fraud Schemes

International fraud can take many forms including:

• securities fraud;
• bust-outs (involving the ordering of high volumes of merchandise and then quickly declaring bankruptcy);
• credit and debit card schemes;
• high-yield investment schemes;
• Internet scams;
• telemarketing scams;
• forged or misappropriated letters of credit;
• cheque kiting;
• money laundering schemes;
• kick-backs;
• accounting manipulations;
• loan-back schemes;
• mortgage and commercial loan fraud; and
• employee collusion and theft.

Unscrupulous individuals rely on both the perceived and real difficulties of pursuing cross-border claims to avoid the consequences of their fraudulent schemes.

Anti-Fraud and Corruption Legislation

Scandals around the world have brought on calls to strengthen corporate governance standards and improve the enforcement of laws governing capital markets activities. In response, Canada has made important legislative amendments and enactments that:

• help combat fraud and corruption, both domestically and abroad;
• provide greater protection and remedies for consumers as well as improved enforcement procedures; and
• require companies to take an active role in reporting fraud and suspicious transactions.

The Canadian parliament is now considering imposing a two-year mandatory minimum sentence on fraudsters where the proceeds of the crime exceed CDN$1 million. The proposed legislation would also obligate the criminal courts to consider a restitution order, which would help to make victims whole within the criminal process.

Canada has also introduced stiff sentences to confront the corruption of public officials both at home and abroad. Those who are found guilty of bribing a Canadian or foreign public official can face a prison sentence of up to five years. A Canadian public official found guilty of accepting a bribe is treated even more harshly and can be imprisoned for up to 14 years.

Commencing Proceedings

Plaintiffs in cross-border fraud litigation must consider several issues:

• whether to pursue criminal fraud charges in Canada;
• what interim relief is available to ensure funds or assets are not dissipated before judgment is obtained;
• what mechanisms are available to locate assets or property;
• how to obtain evidence from citizens in another country;
• how to participate in a cross-border civil class action;
• what the requirements are for a Canadian court to assume jurisdiction; and
• when a judgment obtained in the plaintiffs’ home country will be enforced in Canada.

Civil or Criminal Charges

A criminal fraud conviction may result in the issuing of a restitution order at sentencing that can be converted into a judgment to be enforced against a defendant’s assets. (If proposed legislation is enacted, consideration of such an order will be mandatory.) However, there is always a risk that by the time a court gets around to considering a restitution order, the proceeds of the fraud will have vanished, in safe havens or elsewhere.

Moreover, the Canadian criminal justice system is not currently well-equipped to deal with the distribution of assets of a fraud among a large number of victims with varying claims. Accordingly, the most advantageous recovery strategy in fraud actions in Canada may be the use of civil remedies, including the injunctive relief listed below, even before contacting the police.

Locating and Preserving Assets

There are powerful common law remedies available in Canada to assist in locating and preserving assets and evidence from a fraud to ensure that such assets are not dissipated or destroyed before judgment:

• A Mareva injunction freezes the assets of the defendant prior to judgment. The party seeking such an injunction must (among other things) establish a strong prima facie case and show that there is a real risk of dissipation of assets. In certain circumstances, such a risk can be inferred from the defendant’s fraudulent conduct.
• In some circumstances, a worldwide Mareva injunction can be obtained to restrain the defendant from disposing of his/her assets anywhere in the world. The order must then be recognized and enforced in all jurisdictions where the defendant’s assets are located.
• An Anton Piller order permits the plaintiff’s representatives to enter the defendant’s premises to remove and preserve evidence, including information on computers.
• A Norwich Pharmacal order (a discovery order) is made against third parties. This order allows the plaintiff to trace the proceeds of the fraud by compelling a defendant’s financial institutions to disclose the defendant’s banking records to the plaintiff.
• A Disclosure order, although not always granted in Ontario, requires the defendant to disclose the nature and location of his/her assets, thus allowing the plaintiff to identify and freeze assets accordingly. Courts have held that disclosure of the nature and location of assets is necessary to give effect to an order restricting the disposition of assets.

Undertaking

With the exception of a Norwich Pharmacal order, a plaintiff seeking any of the remedies described above may be required to provide an undertaking as to damages. This undertaking protects the defendant in the event that the granting of the injunction is ultimately shown to have been unwarranted and harm has arisen from the interim granting of that injunction. Such an undertaking will generally be required of foreign litigants seeking relief in Canada.

Production

Cross-border litigants may also ask the court to exercise its power to order the production of relevant documents in the possession or power of a party or witness within that court’s jurisdiction, giving plaintiffs access to documents located outside of Canada.

Class Action Certification

Canadian courts have confirmed that class actions involving investment fraud are certifiable and that a non-resident can be part of a certified class. Class actions can play a significant role in combating certain frauds that target multiple victims, such as telemarketing or securities fraud that may extract nominal sums from hundreds or thousands of individual victims.

Jurisdiction

The powers granted to Canadian civil courts to take immediate, proactive steps that allow victims to recover their assets make it advantageous for victims of fraud to commence proceedings in Canada. However, for a Canadian court to assume jurisdiction, there must be a real and substantial connection between the fraud and Canada. Such a connection can be found to exist, for example, where the fraud has been committed from Canada; the rogue has assets in Canada; or the victims, witnesses and documents are located in Canada.

Enforcement of Foreign Judgments and Orders

Canadian courts have developed a liberal stance towards enforcing foreign judgments. Through the use of Letters Rogatory (letters of request), common law countries are typically receptive to approving the enforcement of foreign orders, provided that there is a practice of reciprocating such assistance from the requesting country.

Conclusion

Canada has adopted and expanded common law and statutory principles to reflect and combat the increasing prevalence of cross-border fraud. In fraud cases, however, the race often goes to the swiftest; proactive plaintiffs who can establish a real and substantial connection between the fraud and Canada may chose to commence proceedings in Canada so as to take advantage of the litigation fraud strategies unique to this jurisdiction.

Bennett Jones’ Fraud Law Group

Partnering with the Bennett Jones Fraud Law Group gives you access to leading lawyers who have acted for the victims of high-profile frauds based inside and outside of Canada. With damage mitigation and recovery being our primary goals, our team draws on our combined years of experience to quickly assess situations arising from fraud and formulate assertive, results-oriented action plans. We have particular experience in securities fraud matters involving insider trading, stock market manipulation and allegations of other criminal activity by directors and officers. Our group meets regularly with our clients to assess existing risk management systems and help prevent future losses.