In an earlier article, we looked at the range of sentences that Courts impose on people who are convicted of large fraud related offences. That article shows that sentences can range from house arrest all the way to several years in prison, depending on the size of the fraud and other mitigating factors.
However, almost every fraud sentencing involves another key consideration — what happens to the money the court finds was involved in the fraud?
It turns out that this is a critical question, one that can be almost as important as the sentence the court imposes. Cases where an accused person has managed to pay restitution in advance of the sentencing hearing nearly always result in a lower sentence. Where restitution isn’t made, the Crown and the courts will take steps to ensure that an accused person is not allowed to ‘profit’ from a fraud, and will likely make orders intended to force the accused to pay the money back. In general, courts achieve this goal through three different types of orders under the Criminal Code:
Restitution
Forfeiture
Fines
Understanding the difference between these orders — and the consequences if the orders are not complied with — is a crucial part of the sentencing hearing on any fraud charge.
Restitution
Under the Criminal Code, restitution orders allow sentencing judges to order an accused person to pay back the victim of a fraud. Section 738 of the Criminal Code sets out the power to order restitution, and it says that judges are permitted to make up to the full amount of any property that was lost or destroyed as a result of the commission of the offence. The Code says that the judge should set out how long the accused has to pay the order.
What happens if an accused person doesn’t have the money to pay back a restitution order?
This is a difficult issue that arises in many fraud related sentencing cases. Section 739.1 of the Criminal Code explicitly sets out that the accused’s inability to pay the order does not prevent the court from making a restitution order under the Code. In other words, even if you can prove that you don’t have the money to pay the order, the court can still make the order. However, the courts have held that judges are allowed to take into account the fact that an accused person cannot pay the order in deciding whether restitution is appropriate, or how much restitution to order. In a 2010 decision, the Ontario Court of Appeal explained the objectives restitution orders are intended to fulfill, which judges are supposed to consider when deciding whether to make an order. Restitution is intended to:
Emphasize the sanction imposed on the accused;
Make the accused responsible for making restitution to the victim;
Prevent the accused from profiting from crime; and
Provide a convenient and quick means of recovery for the victim
In deciding whether or not to make an order, the Court held that judges need to consider the nature of the offence, what happened to the money that was taken, whether a breach of trust was involved, and the impact that a restitution order would have on an accused’s prospects for rehabilitation. This means that restitution orders are considered as part of the overall sentence that is imposed on an accused person, and it is possible to argue in many cases that ordering full restitution would be inappropriate where an accused has no ability to pay the money back, and where it would amount to a crushing penalty that would frustrate their ability to get back on their feet and reintegrate into society after their sentence is over.
What happens if a restitution order isn’t paid back?
Section 741(1) of the Criminal Code sets out what happens if an offender fails to pay back the restitution order made by the court. This section essentially says that the person who is owed the restitution can file the restitution order in any civil court in Canada and the restitution order will become enforceable against the offender in the same way it would be if it was a judgment in a civil proceeding. In other words, the person who is owed restitution can go into a civil court and turn the restitution order into a civil judgment, and can then seek to enforce the order through the civil court system. This would allow the person who is owed restitution to seek things like wage garnishment or a writ of seizure and sale of property.
However, although restitution orders can be enforced as civil judgments if they are not paid back, it is important to realize that the Criminal Code does not set out any further punishment if the restitution order is not paid back, meaning the accused will not be arrested or sent back to jail for failing to pay court ordered restitution.
Forfeiture orders
In addition to restitution orders, the courts also have the power to order an accused person to forfeit money or property upon conviction for an offence.
There are two different ways these orders can be made. The first is an order of forfeiture for the “proceeds of crime”. Section 462.37 of the Code sets out a procedure that allows the Crown to apply to a court to seek forfeiture of proceeds of crime. An accused person does not even have to be convicted of an offence for the Crown to use this section of the Code, as long as the Crown can prove that the property is “proceeds of crime”. To take a simple example, if the Crown could prove that an accused person committed a $1 million fraud, and they could show that the money was then used to buy a house, the Crown could apply for a forfeiture order over the house, on the grounds that it is the “proceeds of crime.” The section is intended to apply to the “ill-gotten gains” of criminal conduct, and the Crown does need to show that property amounts, directly or indirectly, to being proceeds of crime.
The second way to seek forfeiture of money or property is set out under section 490.1 of the Criminal Code and applies to “offence related property.” This is a complicated section of the Code that basically allows the Crown to seek forfeiture of property that wasn’t the profit of crime ⎯ which is what the “proceeds of crime” section is for ⎯ but of property that was used in some way in the commission of the offence. Section 490.1(1) of the Criminal Code sets out that where a person is convicted of an offence and the court is satisfied that certain property is “offence-related property” and that an offence was committed “in relation to that property,” forfeiture may be ordered. In some circumstances, the order is mandatory, while in others, it is discretionary and there is room to argue to a judge that the order should not be made even if the statutory conditions are met.
A simple example of “offence related property” is a house that is used by someone to produce drugs. Before marijuana was legalized, drug dealers sometimes turned houses into “grow ops” that were used to grow marijuana plants. A homeowner who used his or her house in this way would run a high risk of having a forfeiture order made against them, because their house would clearly have been used in the commission of the offence and would amount to offence related property.
However, the courts have held that these provisions apply more broadly than this. For example, they have held that bank accounts can amount to “offence related property” where it is shown that the accounts were used to facilitate money laundering.
Fines
In cases where a fraud has occurred but the “property” obtained by the offence cannot be located or has been transferred to a third party, section 462.37(3) of the Criminal Code allows the Crown to apply for a “fine in lieu of forfeiture.” Under this section, the courts have held that the accused person’s ability to pay the fine is irrelevant. In other words, even if the accused can show that they cannot afford to pay the fine that the Crown is asking the court to impose, the court will impose the fine anyway, so long as the Crown has been able to demonstrate the value of property that was obtained as proceeds of crime that hasn’t been recovered.
The Criminal Code also sets out mandatory jail sentences that must be imposed if the fine is not paid back. The amount of jail time that is supposed to be imposed increases depending on how large the unpaid fine is:
The imprisonment mandated for failure to pay a fine in lieu of forfeiture is substantial, and can often exceed the prison sentence that was imposed for actually committing the fraudulent offence. In 2021, the Ontario Court of Appeal dismissed a claim that these mandatory punishments were excessively harsh and a violation of the Charter of Rights and Freedoms.
What can be done to avoid going to jail if the fine isn’t paid back in time?
The reality is that the fines imposed by the courts can often involve huge sums of money, and that accused people may not be able to pay them back in time. Although the Criminal Code sets out mandatory jail terms that follow a refusal to pay back a fine, there are still things that can be done to avoid having to serve time in jail. When a fine isn’t paid back in time, the court issues a “warrant of committal” that requires the accused to serve the jail sentence set out by the Criminal Code. However, the Court has the power under section 734.3 of the Criminal Code to vary a term of the order and to give an accused person a longer amount of time to pay the money back.
In addition, section 734.7(1) of the Code provides that a warrant of committal should only be issued where the court is convinced that the accused has “refused” to pay the fine “without reasonable excuse”. The courts have held that this means a court cannot issue a warrant of committal where an accused has a “reasonable excuse” for not paying the fine, and the courts have also held that an inability to pay the fine is a reasonable excuse. This means that even if the time for paying back the fine expires, an accused person can still demonstrate that the reason the fine hasn’t been paid back is because they don’t have the money and can’t afford it. The courts have suggested that being too poor to pay the fine back, in other words, is not a reason to send someone to jail.
Instead, the court at the committal stage will be looking for more than an inability to pay back the fine. The warrant of committal will only issue where there is a refusal to pay the fine, and where there is no reasonable excuse for the refusal.