Canadian governments lost more than $10 million to online scammers, Star analysis finds

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Fraudsters have impersonated general contractors, hacked a police chief’s email and posed as a charity as part of a wave of online scams that has swindled taxpayer dollars from city governments and First Nations across Canada.

In the last five years, at least six cities and two First Nations have been duped out of more than a total of $10 million in public funds, the Star has found.

The thefts followed a similar pattern from Ottawa to Kelowna: They started with the impersonation of a service provider and usually ended with the stolen money diverted to bank accounts in Ontario. Most recently, scammers made off with $1.5 million from the City of Greater Sudbury.

Some of these institutions appear to have never told the public about the fraud while they quietly went to court to try to recoup the funds. Millions have been recovered but some of the money remains missing.

‘A major Canadian problem’

“It’s a major Canadian problem,” Toronto forensic accountant Al Rosen said.

The prevalence of the fraud shows a lack of basic controls in municipalities’ accounting systems, he said. “They’re just being willing victims for the guys who want to con them.”

In 2019 alone, three western Canadian cities fell prey to impostor fraud between May and August, wiring substantial public dollars through electronic transfers to bank accounts they believed to belong to their contractors.

The City of Kelowna in British Columbia — the biggest victim of them all — was bilked out of more than $4 million. In a statement of claim filed in an Ontario court in July 2019, Kelowna said a scammer impersonated employees of a city-contracted construction company and tricked city staff into setting up direct deposits to a Scotiabank account that did not belong to the contractor. The fraudster allegedly forged the contractor’s signature and created a fake domain name alongside a series of fake email addresses.

A spokesperson said the B.C. city recovered most of the funds within four months of the fraud, with a shortfall of less than $20,000. The money was intended for an integrated water distribution project, which was not impacted by the fraud.

The claim says Kelowna discovered the fraud about a week after it happened when Scotiabank asked the city if it had intended to wire the money to a business some 4,000 kilometres away in Mississauga.

“Why didn’t you catch it at the first point of access where you were actually dealing with the client?” asks Vanessa Iafolla, principal at Halifax-based Anti-Fraud Intelligence Consulting.

Iafolla, who wasn’t involved in the cases identified by the Star, says a successful fraud is usually a result of multiple failure points in a system and in these cases include the municipalities and the banks.

Kelowna defends not notifying public

Kelowna did not disclose the theft to the public or the associated legal costs.

“The public was not notified in this case because there was no breach of data affecting the public and the majority of funds were recovered,” spokesperson Tom Wilson said.

He noted that the city did not want to provide information that may be beneficial to fraudsters that are continually looking for new ways to infiltrate systems.

Surrey also appears to have kept taxpayers in the dark about the theft of their money.

The suburb of Vancouver confirmed to the Star that it recovered most of the $2 million that was stolen in 2019 after scammers posed as an accounts assistant for a construction company. Taxpayers footed a $100,000 bill for investigation and recovery costs.

A Surrey spokesperson would not answer questions about why it did not previously disclose the theft to the public.

Theft allegedly involved ex-cop turned lawyer

In a lawsuit to recover the money, Surrey alleged it was Ganesh Balaganthan, a former police officer and a practicing Ontario lawyer, and immigration paralegal Amir Akhtar, among others, who stole the city’s money.

Balaganthan attempted to wire some of the stolen money to Hong Kong and Dubai, but the bank stopped the wire transfers after the city discovered the fraud and the funds were returned, Surrey’s lawsuit alleges.

Akhtar, founder of Amir Akhtar Immigration Services Inc., declined to comment. Balaganthan could not be reached for comment.

Unlike Kelowna and Surrey, Saskatoon issued press releases about the fraud. The city successfully recovered all of the lost funds. The money was meant to help pay for a $20-million rehabilitation of the Senator Sid Buckwold Bridge. A Saskatoon spokesperson told the Star that the fraud had “no impact to the project and the project was completed as expected. ”

Municipalities and corporations tend to be more successful in getting their money back because they have resources to take swift legal action, Iafolla said.

However, even those who managed to recover their losses can sometimes still be left footing a substantial bill to cover legal and accounting fees as well as hiring specialists, Iafolla and Rosen both said.

First Nations, Ontario cities targeted by online scams

Ontario cities have been among the recent targets of impostor scams, with Ottawa, Burlington and Greater Sudbury all falling victim.

Ottawa said it recovered all of the roughly $558,000 it was conned into wiring to a Thornhill bank account. The scammer allegedly posed as an executive of the Salvation Army Ottawa Booth Centre, using a fake email account and fake domain name.

Burlington said it has recouped about 84 per cent of the $503,000 stolen in a “complex phishing email” scheme. The majority of that came from the city’s $250,000 insurance claim and a $100,000 restitution, which the perpetrator agreed to pay after a criminal plea negotiation.

Greater Sudbury says it is confident it will recover its money. An Ontario court has recently ordered major banks to freeze and trace the lost funds.

Scammers are not just targeting municipal governments.

In November, Cross Lake Band of Indians in Manitoba wired $847,947 to a London, Ont. bank account that officials thought belonged to a contractor building a public works facility on the reserve. Cross Lake has filed a lawsuit in a Toronto court seeking court orders to trace and freeze the lost funds. The First Nation did not respond to questions from the Star.

In January 2022, Naskapi Nation of Kawawachikamach in Quebec was drained of $65,860 by scammers who compromised the Naskapi chief of police’s email account and posed as a provider for services to the police, according to the court documents filed by the First Nation in November 2023. A lawyer for the Naskapi Nation declined to comment as the court case remains ongoing.

The Star reached out to Scotiabank and the Toronto-Dominion Bank — both named as defendants in a majority of the lawsuits. The two banks declined to comment on the ongoing cases and said they were making efforts to support victims of fraud.

“We’re seeing this all over the place. So it’s not that (these cities’ and First Nations’) systems are any weaker than the rest of Canada,” Rosen said.

In 2023, a total of $554 million was lost in reported fraud across Canada, a 46-per-cent jump since 2021, according to the Canadian Anti-Fraud Centre.

“The less private we are with ourselves and the more reliant we are on the internet, the more possible it is in general for different kinds of fraud to take place and to proliferate,” anti-fraud expert Iafolla said.

As the fraud events increase, the perpetrators are also “innovating and adapting,” she said.

“It’s one thing to say we got the money back. We all know that’s not going to stop. It’s probably only going to amplify. The question then is really what has everybody learned from this. How are you going to make changes such that your systems don’t fail in the same way again? ” Iafolla said.

This article was originally sourced from www.thestar.com