What are the penalties for corporate fraud?  

What are the penalties for corporate fraud?  

Corporations may face criminal liability if a senior officer is involved in or aware of fraudulent activities and fails to take reasonable measures to prevent them. The maximum penalty is 14 years in prison if the fraud was worth $5,000 or more.

The same penalty can be imposed if that fraudulent action “affects the public market price of stocks, shares, merchandise or anything that is offered for sale to the public.”

According to s.380 (1) of the Criminal Code, any person or corporation can be charged if they defraud “the public or any person, whether ascertained or not, of any property, money or valuable security or any service.”

Frauds valued at less than $5,000 carry a maximum sentence of two years in jail.

Since corporations cannot be imprisoned, fines are given when firms are convicted of crimes. In the case of a summary conviction offence, the maximum fine is $100,000. For the more serious and indictable offences, the Code provides no limit on the fine that can be imposed.

What is the criminal liability of corporations?

In 2004 Parliament modernized the law concerning the criminal liability of corporations. According to A Plain Language Guide: Bill C-45 - Amendments to the Criminal Code Affecting the Criminal Liability of Organizations, s.21 of the Code provides that a person is a party to an offence “if the person actually commits the offence or aids or abets another person to commit it.”

The guide adds that “determining whether a corporation has committed a prohibited act and whether a corporation has the requisite mental state is far more complicated than for an individual.”

There are three ways an organization can commit a crime.

“The most obvious way for an organization to be criminally responsible is if the senior officer committed the crime for the direct benefit of the organization,” the guide states. “For example, if the CEO fudges financial reports and records, leading others to provide funds to the organization, both the organization and the CEO will be guilty of fraud.”

The second way corporations can commit crimes is if senior officers direct others to undertake dishonest work.

“The employees themselves have no criminal intent but the senior officer and the organization could be found guilty,” the guide explains.

The third way an organization would be guilty of a crime is if a senior officer is aware employees are going to commit an offence but does not intervene, hoping the organization will benefit from the crime. 

“The senior officer may become aware that an employee is going to get a kickback from the thieves for getting the organization to buy the stolen goods … if he does nothing to stop it because the organization will benefit from the lower price, the organization would be responsible,” the guide states.

How does the OPP handle fraud?

The Ontario Provincial Police includes a Serious Fraud Office (SFO) that investigates major allegations of white-collar crime. The office comprises both investigators and prosecutors, which deviates from the traditional approach of having a wall between the two key enforcement functions.

According to a news report, the SFO aims to be a “centre of excellence for fraud investigation and fraud prevention,” using resources such as digital forensics and investigators from both the OPP and several Greater Toronto Area police services.

The 2023 report adds that since its inception in 2018, “Ontario's SFO's investigation branch has taken on 12 cases … which are generally lengthy and take years. So far, investigators have laid charges in four of those cases. Two are still before the courts, and the other two … ended in convictions.”

To obtain a fraud conviction, the prosecution must show the accused intentionally committed an act to defraud someone or the public. It must also demonstrate that someone suffered a financial loss.

Are corporate frauds easy to detect?

According to a University of Toronto (U of T) report, “fraud is indeed like an iceberg with significant undetected fraud beneath the surface.”

It notes that two out of three corporate frauds go undetected, adding that “under typical [auditing] surveillance, about three per cent of U.S. companies are found doing something funny with their books in any given year.”

But when researchers looked more closely they found “that the real number of companies involved in fraud is at least 10 per cent – about three times greater than their previous estimates. That squares with previous research that has pegged the true incidence of corporate fraud between 10 and 18 per cent.”

While researchers were examining U.S. companies, the U of T report speculated “that the ratio of undetected-to-detected fraud is not significantly different in Canada.”

It adds that fraud destroys about 1.6 per cent of a company’s equity value – mostly due to diminished reputation among those in the know, representing about $830 billion in current U.S. dollars.

What are the defences against corporate fraud allegations?

Corporate fraud charges are typically laid after lengthy probes during which investigators may make serious errors or infringe on the accused’s rights. If such an error or overstepping can be detected, that may be a reason to have evidence excluded.

A criminal defence lawyer can also raise the issues about who should be held accountable if corporate fraud is detected. Who does the financial trail lead back to and was it an honest mistake?

Most investigations involve numerous financial statements, emails, text messages, corporate documents and more. The information they contain can be used to prove a defendant’s innocence or to at least raise an element of doubt.

It is possible to beat fraud charges or negotiate with the Crown prosecutor to reduce the charges and minimize their impact on the accused.

Call me for assistance

Facing fraud allegations can seriously affect your job, reputation and personal freedom. Before speaking with the police, contact me for a free consultation in French or English.