What Fraud Victims Should Know About Criminal Forfeiture Orders

Norman Groot, LLB, CFE, CFI

An Update on Fraud Recovery through the Criminal Process

On September 13, 2016, the Ontario Court of Appeal released its decision in R. v. Angelis, 2016

ONCA 675. The decision provides clarity for fraud victims who hope to obtain a recovery through the criminal justice system’s forfeiture of proceeds of crime provisions.

Supporting Case Document: Court of Appeal for Ontario

CITATION: R. v. Angelis

What Happened to Angelis?

The trial judge imposed a sentence that included a term of imprisonment of four years and three months, which he reduced to three years after deducting credit for pre-disposition custody. The sentence also included three free-standing restitution orders totaling $100,750 in favour of each of the victims of the lesser frauds. The trial judge declined to make a restitution order where the loss had been covered by insurance. He also declined to order restitution to the insurer. The Crown appealed and sought a fine of $1,036,750 in lieu of forfeiture.

The opening paragraphs from the Court of Appeal decision are an interesting read:

[1] Nick Angelis had a problem. He wanted the best. For himself and for his family. But he couldn’t afford the lifestyle he coveted. He hit upon a solution. Money was available. From different sources. At different times. So he took it. All it required was some deceit, a bit of fraud and a few other dishonest means.

[2] But Nick Angelis got caught. And despite that, he did it again. Repeatedly. Even while on bail. Mea culpa, Nick said. A judge agreed. He sent Nick Angelis to the penitentiary. Ordered that he pay restitution for some of his victims, but not others.

[3] At his sentencing hearing, Nick Angelis told the judge that the money was all gone. Nothing remained. No proceeds of crime to forfeit. So the Crown asked the judge to order Nick Angelis to pay a fine in lieu of forfeiture. The judge refused.

[4] The Crown appeals.

[5] I think the judge got it wrong. I would grant the Crown leave to appeal, allow the appeal and require Nick Angelis to pay a fine in lieu of forfeiture in the amount of $1,036,750. I would give him 10 years to pay that fine and, in default of payment, impose a sentence of 10 years to be served consecutively to any other sentence he is then serving.

Why the Angelis Decision is Important

The Angelis decision is important as it is the first decision from the Court of Appeal that has considered the interplay of: criminal sentencing principles, including restitution orders; the fine in lieu of forfeiture provisions designed to keep the proceeds of crime out of the hands of fraudsters; and victim’s recovery efforts through civil litigation (see paragraph 67).

Most cases to date that have dealt with the forfeiture provisions of the Criminal Code have not examined the interplay between forfeiture and restitution orders (see paragraph 15). For information on recovery through criminal restitution orders, see our prior blog posts:

Recovery Through Criminal Restitution Orders https://investigationcounsel.com/post/pro-rata-restitution-orders-fraud-victims/

Criminal Sentencing and Problems with Restitution Orders http://www.investigationcounsel.com/post/fraud-victims-know-criminal-sentencing-fraud-recovery/

Recovery Through Securities Regulators https://investigationcounsel.com/post/fraud-victims-know-recovery-securities-regulators-problems-relying-osc-disgorgement-orders/

What are Fines in Lieu of Forfeiture?

Fines in lieu of forfeiture operate as a surrogate for forfeiture itself. Forfeiture is the surrender of proceeds of crime. If a fraudster refuses or cannot forfeit the proceeds of his or her crime, a fine that reflects the amount fraudulently obtained is imposed.

After a criminal sentence for fraud is completed (which may include imprisonment and the payment of restitution), a fine which reflects forfeiture may still be required to be paid. If the forfeiture fine is not paid, the Court can impose further incarceration up to a designated amount of time until the forfeiture payment is made (see paragraph 86).

When will Fines in Lieu of Forfeiture be Imposed in the Criminal Process?

To obtain an order of forfeiture under the proceeds of crime provisions of the Criminal Code, the Crown must satisfy several conditions precedent for the Court. Once the Crown has done so, a forfeiture order under s. 462.37(1) is mandatory.

The reason the forfeiture provisions of the Criminal Code are mandatory is because the objective is to deprive convicted offenders of any proceeds derived from their crimes. Doing so deters them and others from similar conduct in the future (see paragraph 25).

With respect to the conditions precedent for a fine in lieu of forfeiture order, pursuant to s.462.37(1) of the Criminal Code, the underlying conviction or finding of guilt must be for a “designated offence” as defined in s. 462.3(1). Fraud is one such designated offence.

Once a finding of guilt for fraud has been made, the Attorney General must apply for forfeiture. We have heard of cases where Crowns do not take this initiative. Fraud victims are encouraged to request this from a Crown or to even make a complaint about a Crown’s failure to do so in their Victim Impact Statement or through other channels.

Once a Crown makes application for forfeiture the sentencing judge must consider, on a balance of probabilities, whether:

  1. the subject-matter of which forfeiture (the money lost) is sought is “proceeds of crime” within s. 462.3(1); and
  2. the designated offence (fraud) was committed in relation to the property that is proceeds of crime (the money lost).

The property that is “proceeds of crime” must not only be that of the offender but the offender must have had possession or control of the property in question at some point (see paragraph 35).

If a judge finds the prerequisites have been met the Court must impose a fine in lieu of forfeiture, in addition to the sentence imposed for the crime itself.

What is the Rational for Fines in Lieu of Forfeiture in the Criminal Process?

The Crown in Angelis argued that a fine in lieu of forfeiture is not a constituent part of a global sentence imposed on a convicted offender, but rather a discrete order based on a different rationale. It is not offender-centric and its issuance or refusal is not subject to the sentencing objectives, principles and factors put in place by Part XXIII. The Crown further argued that the sentencing judge applied sentencing principles in deciding not to impose a fine in lieu of forfeiture. The Crown submitted the sentencing judge was wrong to do so (see paragraph 27).

The Court of Appeal agreed. The Court held that Parliament recognized that the forfeiture of proceeds of crime is not always practicable. Sometimes, proceeds cannot be found. They may be outside Canada. They may be in the hands of third parties. Alternatively, what was taken may have been substantially diminished in value, rendered worthless or commingled with other property that cannot be divided without difficulty. To address such circumstances, Parliament enacted section 462.37 of the Criminal Code to permit judges to impose a fine in lieu of forfeiture (see paragraph 33).

The forfeiture provisions of the Criminal Code are distinct from sentencing. Rehabilitation is an objective of sentencing. Rehabilitation is offender-centric. The forfeiture scheme is distinct from sentence and cannot inform the determination of whether to order payment of a fine in lieu of forfeiture (see paragraph 47). The primary objective of the forfeiture provisions of the Criminal Code is to deprive offenders and criminal organizations of proceeds of crime and thereby to deter future crimes (paragraph 32).

The Court also stressed that the imposition of a fine in lieu of forfeiture is not part of the global sentence imposed upon an offender. Subsequent imprisonment for failure to pay the fine in lieu of forfeiture is an enforcement mechanism to encourage payment by those with the resources to do so (see paragraph 50).

It is our view that this line “subsequent imprisonment for failure to pay a fine in lieu of forfeiture as an enforcement mechanism to encourage payment” is the message that debtor’s prison again exists in Canada for fraudsters.

Where Do the Proceeds of Payment of Fines in Lieu of Forfeiture Go?

The proceeds of the fine go to the state, not to the victim (see paragraph 72). However, any payments made pursuant to a fine in lieu of forfeiture should be credited to the restitution orders made by the trial judge (see paragraph 18).

The Interplay of Criminal Fines in Lieu of Forfeiture with Civil Fraud Recovery Litigation?

It is settled law that restitution or compensation orders “should not be used as a substitute for civil proceedings,” and that these criminal law restitution orders do not “displace the civil remedies necessary to ensure full compensation” (see paragraph 16).

The Court held that the availability and likely success of civil proceedings for victims to recoup their losses has nothing to do with proceeds of crime legislation, the objective of which is to deal with proceeds separately from, and in addition to, the punishment for committing the crime, which includes restitution to its victims (see paragraph 73).

We agree. We are of the view that fine in lieu of forfeiture orders should not be used as a substitute for civil proceedings for recovery from fraud for various reasons, including the unpredictability of the outcome of criminal proceedings, limitation periods, recovery from third parties other than the primary fraudster, and the lack of accounting and tracing remedies to fraud victims in the criminal process. A fraud victim does not have any control over the criminal process, but does in in their own civil fraud recovery litigation.