A fraud victim’s response to a fraudster’s allegations of extortion

Supported By:

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

It is common practice for fraudsters who are defendants to civil fraud claims to allege that a fraud victim’s criminal complaint to police is being made for the purpose of obtaining an unlawful advantage in the civil proceedings. Sometimes fraudsters allege the criminal offence of extortion as against their fraud victims for the purpose of attempting to deter them from making a criminal complaint to police or a regulatory body. Fraud victims should not be put off by such allegations, but rather simply be aware of how to properly proceed with simultaneous civil proceeding and criminal or regulatory complaints.

Two different systems of law: civil and criminal

Before discussing how to properly bring simultaneous civil, criminal and/or regulatory proceedings, it is important to understand the purpose of the two different systems of law. The civil justice system’s primary purpose is to provide fraud victims with direct access to justice to seek restitution and retribution as against those who wrong them. The victims commences an action in their own name as against the fraudsters and their accomplices, and allowing them to control the pace and settlement of their action. Civil litigation is a branch of private law.

Conversely, the criminal justice system’s primary purpose is to respond to offences against society as a whole. It serves to deter the offender specifically, deter others generally and rehabilitate the offenders. Restitution of victims is a secondary concern, often viewed as militating against specific deterrence and demonstrating rehabilitation. While the views of victims of crimes are considered at bail hearings and sentencing through victim impact statements, the focus of criminal law is on the offender and the state. Criminal law is a branch of public law.

The threat of a criminal complaint as extortion for the Criminal Code?

Fraudsters sometimes allege that fraud victims are themselves committing the crime of extortion if they attempt to use the threat of criminal proceedings to induce payment of a civil debt. To this end, the criminal charge of extortion, found at section 346 of the Criminal Code of Canada, should be reviewed. It provides that everyone commits an offence who, without reasonable justification, and with intent to obtain anything by threat or accusation, induces or attempts to induce any person to do anything or cause anything to be done. Importantly for fraud victims is that this section specifically provides that the threat to commence civil proceedings is not a threat for the purposes of this section. The concern we are addressing here is whether the threat of making a criminal complaint is extortion for the purposes of the Criminal Code.

By Norm J. Groot:
Recovery against banks for fraud victims; two big Ponzi schemes
The debtor’s jail in fraud recovery through the criminal process
Fraud recovery from a spouse or family member of a fraudster

The Law Society of Upper Canada has opined on this subject.  It is their view that a threat of criminal prosecution prior to the actual laying of charges for the purpose of inducing a settlement of a financial dispute is prohibited. However, the Law Society of Upper Canada has also opined that a plaintiff lawyer may negotiate with a defendant lawyer in a civil action the withdrawal of criminal charges in exchange for payment, recognizing that the decision to withdraw a charge or reduce sentence is ultimately that of the Crown: see Criminal Law May Not Be Used to Collect Debts, The Law Society Gazette, Vol. 2, No. 1-3 (Toronto, Law Society of Upper Canada, May – Dec 1967).

The Courts have also opined on this subject. It has been held that a letter from a fraud victim’s counsel to a defendant fraudster advising that, in addition to the civil litigation, the plaintiff is making a criminal or regulatory complaint does not amount to extortion if the letter is simply a ‘courtesy’ notice of the complaint as opposed to a threat a complaint would be laid if payment was not received: see Heydary Hamilton PC ats Muhammad (2013), CarswellOnt 11120.

Read more by Fraud Recovery Lawyer Norman J. Groot at Investigation Counsel PC.

For further information on this topic, see also their blogs: Considerations Before Reporting Fraud to the Police and Triaging Your Fraud Loss.