Deter crime and compensate victims: what is the civil remedies act?

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Net Patrol International Inc.  Data Investigation and Forensic Services
Bankruptcy and Insolvency Trustees

In 2001, the Government of Ontario enacted the Civil Remedies Act, CRA, ostensibly to create a new tool to deter crime and compensate its victims. Ontario was the first province to enact such legislation. Most provinces and territories currently have similar laws.

Unlike the federal Criminal Code of Canada, which deters crime by imposing incarceration or other punishment on those found guilty of crimes, and attempts to rehabilitate convicted fraudsters through restitution orders and fines-in-lieu-of-forfeiture, the CRA permits an Ontario Superior Court to order the forfeiture of the proceeds of crime in an effort to make crime unprofitable and create an opportunity for a victim’s recovery.

Some people are strongly against the CRA, like Marni Soupcoff who wrote about a case (read the article). The Ontario government seized the house of an Oshawa couple even though all criminal charges against the pair were dropped. The property was deemed to be a proceed or instrument of crime. Soupcoff thinks backward legal process is being used on a regular basis, even in cases where the government doesn’t have enough proof to make a criminal charge stick: “It’s time to expose these civil forfeiture practices for what they are: government actions that treat citizens like cash cows, while violating their Charter rights,” says Soupcoff. In this article I will explain the process of CRA.

The CRA attempts to make crime unprofitable by allowing the Attorney General of Ontario to bring applications in rem (against property instead of against a person) for the freezing, seizure, forfeiture and preservation of any property located in Ontario which is deemed to have been used to commit an illegal act or to have been acquired by committing an illegal act. Forfeited property is then used to cover Crown legal expenses, or may be returned to its legitimate owners in certain circumstances.

Victim involvement in bringing a CRA application

Victims of fraud have no direct access to make a complaint to the Civil Remedies for Illicit Activities Office (“CRIA”). Rather, cases for which a CRA application is made are referred to the CRIA by police or securities regulators for consideration without direct input from fraud victims.

Fraud victims who hope for recovery through a CRA application are required to make a criminal or regulatory complaint, and then hope that the Crown, police or securities regulators will submit their case to the CRIA. If the CRIA deems a case to be in their interest, an application is brought by CRIA lawyers on behalf of the Attorney General.

If a Court makes an order pursuant to a CRA application, the forfeited money or property is held by the Crown in a designated fund (forfeited money or property is to be deposited in a “Special Purpose Account,” within the province’s Consolidated Revenue Fund). Persons who have a potential property interest are then notified to submit a claim for compensation. 

Burden of proof

Applications brought by the AG are brought against property, not persons. The application for forfeiture is initially brought ex parte by the Crown to preserve the property at issue. After the Court orders the property held for a hearing, those who had possession are notified that they may contest the application for forfeiture.

The burden of proof is on the Attorney General who, pursuant to Section 16 of the Act, must show that the property in question is the proceeds or an instrument of unlawful activity. The standard of proof on the Attorney General is “the balance of probabilities”. This is the standard of proof used to determine liability in civil rather than the more onerous standard used in criminal proceedings, where an accused must be found guilty “beyond a reasonable doubt”.

Circumstantial evidence is admissible in CRA applications. A respondent’s failure to provide a credible explanation for a legitimate source of the property or an explanation for a lavish lifestyle without apparent source of income may be considered by a Court as part of the forfeiture analysis. To state otherwise, suspicious circumstances call for a “credible and reasonable answer.”

If there is a finding of guilt in a criminal proceeding related to a criminal charge, the finding will also satisfy the balance of probabilities standard of proof required for forfeiture under the CRA. Section 17 explicitly provides that when a person is found guilty on criminal charges such as fraud, they are deemed to have committed the unlawful act for the purposes of the Act.

In other words, a criminal conviction of fraud will result in an order under the Act provided the Crown can also demonstrate that the property in question is proceeds of the fraud. However, even if an accused has been acquitted or the charges were withdrawn or stayed, that person can still be the subject of an order for forfeiture under the Act.

Priority of creditors

The CRA and its implementation by the CRIA have been severely criticized for distributing the money to provincial and law enforcement agencies rather than compensating victims of crime as its first priority.

The regulations to the CRA prioritize recovery of the Attorney General’s legal expenses before compensating victims of crime. Generally, it is only after such recovery that the victim can hope for compensation, and then only if the Crown is satisfied that the monies or property seized can be traced to the victim’s funds.

Because applications under the Act are litigated by the Attorney General and not by their victims’ own counsel, this means that the fraud victim gives up substantial control over a claim to seized monies and property.

According to an April 2016 CBC News report since November 2003, approximately $48.6 million worth of property has been seized by the province under the Act. Of that amount, $24.5 million of that has been distributed to victims, $10.9 million was distributed to law enforcement agencies through grants, and the remainder $13.2M was retained by the Ontario government to help recover the cost of handling cases of civil forfeiture.

Although $24.5M of a seized $48.6M sounds like a respectable percentage of recovery for victims, it must be borne in mind that $17M of that $24.5M was from the Stanford case referred to above. According to a June 27, 2016 Law Times article, it was reported that the Ontario government had generated $2.9M in 2014-15 from its Civil Remedies Act powers, but of that amount only $202,000 was paid in direct compensation to victims of crime. Only approximately 7% of recovered money and property was returned to victims (read more). 

The Bottom Line

While recovery efforts through the CRA and CRIA is laudable, investment/securities fraud victims hoping to obtain recovery in the justice system should retain their own civil fraud recovery counsel to at least issue a claim and then monitor the criminal and regulatory case.

In my experience, fraud victims often require guidance on coordinating their private recovery actions with their role as complainants in regulatory or criminal actions. Civil fraud recovery counsel should also provide an opinion on whether civil pre-action remedies such as tracing and freezing of the victim’s lost money is viable in the circumstances.

  • Fraud victims should be aware that if a criminal complaint is made, and if a restitution order is issued, this order can be registered as a civil judgment and also used for obtaining judgment for a higher quantum of damages in the civil system. If a restitution order is not made by a criminal court, at least the victim will have an avenue (the civil system) through which to pursue recovery.
  • Another important consideration for fraud victims is that often criminal and regulatory actions only focus on the primary fraudsters. In civil fraud recovery actions, victims often can bring suit against and seek recovery from professionals and others who facilitated or were enriched by the fraud – sometimes referred to as secondary defendants – or defendants who are ‘knowing assistants’ or ‘knowing recipients.’ Actions against secondary defendants should often be brought when the loss is discovered.
  • Finally, fraud victims must be aware of limitation periods. Often victims lose their right to civil recovery because they mistakenly believed they could sue after the criminal system has run its course if a recovery through the ‘public’ system was not successful. The hard reality is that often criminal and regulatory cases take longer than the civil limitation period allows – resulting in victims losing their right to sue when they realize there will not be a recovery for them through the criminal or the securities regulator processes.

I advise fraud victims that often being part of a group of complainants is not in all investors’ best interests. While class action fraud cases are appropriate in some circumstances, the vast majority of fraud recovery actions are by single or small groups of investors.