Government Bill Proposes Mandatory Sentences for Serious Frauds

June 2010 | Emily Cole

Justice Minister Rob Nicholson stated that proposed amendments to the sentencing provisions of the Criminal Code, which were reintroduced in Parliament on May 3, 2010, were designed “to ensure that people who devise and carry out serious fraud offences receive tougher sentences”. The Government also promised that the amendments would make the justice system more responsive to victims of serious frauds and improve Canadians’ confidence in the justice system. Yet the Canadian Bar Association does not recommend that Bill C-21 be passed into law. 1

Bill C-21 proposes the following five changes:

  1. Mandatory Two Year Jail Sentences for Frauds over $1 million
  2. Additional Statutory Aggravating Factors for Sentencing
  3. Discretionary Prohibition Orders against having Authority over Money
  4. Mandatory Consideration of Restitution for Victims of Fraud
  5. Community Impact Statements

1. Mandatory Two Year Jail Sentences for Frauds over $1 million

The current maximum sentence for fraud over $5000 is 14 years imprisonment. This is the maximum penalty available in the Criminal Code, short of life imprisonment.

The proposed amendments would impose a mandatory sentence of two years imprisonment for fraud over $1 million.

2. Additional Statutory Aggravating Factors for Sentencing

The Criminal Code currently requires the court to consider the following statutory aggravating factors: whether the value of the fraud exceeds $1 million, its potential or actual impact on the economy, the financial markets or confidence in those markets, whether the fraud involved a large number of victims and whether the offender took advantage of the high regard with which the offender was held in the community.

The proposed amendments would require the court to consider whether the magnitude, complexity, direction or degree of planning of the fraud committed was significant, whether the impact on the victim was significant given their personal circumstances including age, health and financial situation, failure to comply with licensing requirements or professional standards and concealing or destruction of evidence relating to the fraud or proceeds of the crime.

The proposed amendments would also require the court to state in the record the aggravating and mitigating circumstances that it took into account when determining the sentence. The Criminal Code currently requires the court to state the terms of the sentence imposed and the reasons for it and to enter those terms and reasons in the record.

3.  Discretionary Prohibition Orders against having Authority over Money

The Criminal Code currently provides the court with the discretion to make prohibition orders. Specific authority is granted to make orders against possessing firearms and other weapons and orders against sex offenders from being at prohibited locations.

The proposed amendments would give the court specific authority to make an order prohibiting the offender from seeking, obtaining or continuing employment, or becoming a volunteer in any capacity, that involves having authority over the real property, money or valuable security of another person.

4.  Mandatory Consideration of Restitution for Victims of Fraud

The Criminal Code currently provides the court with the discretion to make a restitution order.

The proposed amendments would require the court to consider making a restitution order for victims of fraud.

5. Community Impact Statements

The Criminal Code currently requires the court to consider victim impact statements in determining the sentence to be imposed on an offender. The court also has the discretion to consider any evidence about the victim for the purpose of determining sentence.

The proposed amendments provide that the court may consider community impact statements describing the harm done to or losses suffered by a community as a result of the offence. The community impact statements will give investors who have suffered harm a voice, particularly those who have been victims of an affinity fraud where fraudsters prey on members of identifiable groups such as religious, ethnic or professional groups. This could be helpful given the recent rise in affinity fraud e.g. the Weizhen Tang, Oversea Chinese Fund LP and Gordon Driver, Axcess Fund LP cases.

Will Bill C-21 result in tougher sentences?

Bill C-21 is the result of intense lobbying from victims groups, particularly investors who lost their life savings and assets to Montreal money manager Earl Jones. Yet, the proposed legislation would not have affected the jail sentence in the Earl Jones case or other recent high profile securities related fraud cases including the Stan Grmovsek and Vincent Lacroix cases.

In February 2010, Earl Jones was sentenced to 11 years after pleading guilty to two counts of fraud. 150 investors were defrauded of $50 million in a Ponzi scheme orchestrated by Jones that spanned more than 20 years.

In January 2010, Stan Grmovsek was sentenced to 39 months imprisonment after pleading guilty to fraud, illegal insider trading and money laundering. The jail sentence is consistent with Canadian jail sentences for large scale frauds involving breach of trust and the US sentencing guidelines. In addition to the jail sentence, Stan Grmovsek agreed to disgorgement orders totaling $8.5 million. The offences spanned a 14 year period, but the trading was generally conducted in two – four year time periods.

In October 2009, Vincent Lacroix, former President and Chief Executive officer of Norbourg Asset Management Inc. was sentenced to 13 years after pleading guilty to more than 200 counts of fraud, conspiracy to defraud, conspiracy to commit forgery, fabricating documents and money laundering under the Criminal Code. The court ordered Vincent Lacroix to serve that sentence consecutive to the five year sentence that he received for Securities Act violations. The offences occurred over a five year period during which 9,200 investors were defrauded of $115 million.

The Canadian Bar Association position

The CBA recommended that Bill C-21 not be passed into law. The CBA stated that the proposed amendments would treat all acts of or attempts at fraud more harshly even if the hallmarks of serious “white collar crime” are lacking. It also noted that Bill C-21 limits judicial discretion to address the individual circumstances of each case and would add another mandatory minimum penalty to the Criminal Code.

Bill C-21 must go through Second Reading, a Committee Report and Third Reading before it becomes law.

Emily Cole recently joined Miller Thomson as Associate Counsel after several years as Senior Litigation Counsel in the Enforcement Branch of the Ontario Securities Commission. She practices securities litigation and regulation and white-collar defence. Ms Cole is admitted to practice in both Ontario and New York and has extensive experience in trans-border investigations, defence and prosecution. 

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1 Bill C- 52 the predecessor bill to Bill C-21 was originally introduced in October 2009 but died on the order paper. It had First Reading on October 21,  2009 and Second Reading on October 26, 2009. It was referred to the Committee on Justice and Human Rights, where it was discussed at several meetings during November and December 2009.  The committee did not report back to Parliament before the session was prorogued.

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