How is Fraud Defined?
Date Updated: July 21, 2020
Written By: Ravi Prithipaul (Alberta Criminal Defence Lawyer)
Summary
Section 380 of the Criminal Code of Canada states that a person “…who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,” is guilty of fraud. The difficultly with this definition is that it repeatedly uses the terms “fraud and “defraud”. So, how has the term fraud come to be understood? In simple terms, to defraud is to deprive by deceit. One could say that a fraudulent act is one where deceptive behaviour is used to create a risk of loss, often for the perpetrator’s gain.
Detailed Law Breakdown
There is no exhaustive definition of fraud for criminal law purposes. Canadian courts have held that the criminal offence of fraud consists of two basic elements:
- A prohibited act of deceit, falsehood or other fraudulent means. In the absence of deceit or falsehood, the courts will look for an objectively “dishonest act”; and
- Deprivation which must be caused by the prohibited act, and which relates to property, money, valuable security, or any service.
It should be noted that “prohibited act” can refer to an omission, such as silence where an individual hides from another person essential information. A fraudulent action may also be something which violates ethical standards or codes of conduct which govern professionals.
As is the case with all criminal offences, the prosecution is required to prove “beyond a reasonable doubt” that the accused is guilty in order to obtain a conviction.
Specific Penalties Will Vary Depending on the Type of Fraud
In addition to the general definition of fraud in section 380 of the Criminal Code, sections 381 through 396 address various specific scenarios in which fraud can occur: the use of mails to defraud, stock market manipulation, insider trading, concealment of title documents, fraud in relation to fares, and so on. Maximum penalties depend on the acts and subject matter of the fraudulent scheme. For example, fraud in relation to non-payment of a fare or admission is punishable by a maximum sentence of two years’ jail (section 393), while prohibited insider trading carries a maximum sentence of imprisonment for ten years (section 382.1(1)).
Thoughts from a Criminal Lawyer’s Perspective
There is no minimum punishment for fraud involving less than $5,000, the most common-alleged form of the offence (section 380(1)(b)(ii) of the Code). The maximum penalty is up to two years in jail. A person who commits fraud involving an amount of money or property valued at $5,000 or greater may face up to fourteen years in prison (there is no minimum punishment: section 380(1)(b)). Where the amount of money at issue exceeds $1,000,000.00, the offence is punishable by a minimum sentence of two years. However, these are not the only possible consequences.
Section 380(1.1) of the Criminal Code lists features which are considered aggravating in fraud cases: the magnitude and complexity of the scheme, the number of victims, and the effect of the fraud on victims, etc. In certain specific circumstances, courts can restrict a person convicted of fraud from performing defined activities. Section 380.2 of the Criminal Code allows courts to “make an order prohibiting the offender from: seeking, obtaining or continuing any employment, or becoming or being a volunteer in any capacity, that involves having authority over the real property, money or valuable security of another person.” This measure allows courts to protect the public from the prospect of an offender’s attempt to re-engage in fraudulent behaviour.
Another tool at the disposal of courts is to impose a requirement on the person convicted to repay the amount of the loss through a restitution order: section 738 of the Code. However, where the loss is to property (such as a monetary amount or damages), the amount must be “readily ascertainable”.
Consequences of being convicted of fraud can include being sued in civil court
In civil law, wrongs perpetrated on others are generally known as “torts.” In civil law, a person who wants to sue must establish that there is a “cause of action” against the person he or she is suing. The law has defined a variety of torts that give rise to a civil cause of action, one of which is civil fraud.
In 2014, the Supreme Court of Canada clarified the definition of civil fraud in the decision Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8, [2014] 1. S.C.R. 126. The definition contains four elements that much be met:
- a false representation was made by the defendant;
- the defendant had some level of knowledge of the falsehood of the representation (whether through knowledge or recklessness);
- the false representation caused the plaintiff to act; and
- the plaintiff’s actions resulted in a loss.
It is not a requirement that a person be charged with and convicted of criminal fraud in order to succeed in a civil fraud case. Further, in a civil suit, the plaintiff must merely show that the defendant is guilty of fraud on a “balance of probabilities.” On the other hand, being found guilty of criminal fraud could facilitate proof of the civil tort.
Last modified: July 21, 2020
