Why Business Owners & Employees are at Risk of Being Accused of Fraud: Top 5 Tips on How to Protect Yourself Against Career & Life Ruining Criminal Charges

Many of us think wrongly that there is a stark distinction between the civil action world and the criminal charge world. That a falling out between business partners, or between employer and employees, will at worst lead to a civil lawsuit, or complaint to the labour board, so long as no one tips over the edge into assault or threat of violence. Not true. 

Business partner and employer accusations of criminal conduct by former partners or employees are a lot more common that you might think. Unfortunately, such accusations are sometimes made in an attempt to gain a strategic advantage in a civil settlement. 

Criminal Fraud Is Very Close to Civil Fraud or Deceit

The criminal offence of fraud is very similar to the civil torts of fraud or deceit. There’s a higher standard of proof for the criminal charge, but also far more career ending, life destroying consequences upon conviction.

Fraud is very broadly defined at section 380 of the Criminal Code: "Everyone who, by deceit, falsehood, or other fraudulent means ... defrauds the public or any person, whether ascertained or not, of any property, money, or any valuable security or any service, is guilty …” Note that even public frauds like tax evasion could be criminally charged. Criminal Code fraud punishment ranges up to 14 years imprisonment, making this one of the most serious Canadian offences on the books. By comparison, even the most serious of sexual assaults can only attract a 10 year term of imprisonment unless the victim is under 16 years of age, in which case the potential penalty is still only the same as fraud. 

Accidentally use that employer gas card to fill your own car, and not be believed that it was an accident? Or use it with the permission of your employer, who then “forgets” you got permission? Or maybe just use it for $30 of gas because you didn't think anyone would notice. Criminal charge. Or professional misconduct charge. Think it can’t happen? Ask the Canadian police officer who was prosecuted and fired for that $30 of gas on the corporate card (and I do mean $30, and I have a copy of the case to prove it). 

Give yourself a $2 an hour raise because your employer told you to. And not have the employer sign anything confirming that raise, which only becomes an issue years later when there's a falling out? Criminal charge. 

Bad falling out with your business partners? They claim you took more than your fair share of the profits? Criminal charge. 

As a lawyer who has regularly prosecuted, investigated, and defended all manner of frauds, here are my top five tips for protecting yourself against unjustified fraud allegations. 

1. Get It In Writing

Courts love paper (or the electronic equivalent), and distrust words. But just claiming verbally after the fact that you had an agreement with someone may carry little weight if that claimed agreement appears to be self-serving, and others contradict your recollection of any agreement. 

Email actually helps a lot with getting it in writing, because courts seems consistently in my experience (and I go to court a lot) to take email as gospel, absent proof to the contrary. No signature. No letterhead. No proof the recipient event read it. Or the sender even sent it for that matter. Courts don't seem to care, unless someone directly claims the documents is itself fraudulent. Text and social media messages might be accorded similar weight by a court. 

In the (not so) good old days, to ask someone for a typed or even handwritten note, with their signature at the bottom, was often a bit over the top in order to prove an informal agreement. Thus the electronic world, while perhaps killing off the art of letter writing, has massively expanded the use of the written word. Why phone someone and then try to clumsily record the scratchy conversation, when you can just exchange emails? 

This get it in writing principle applies as much to complex business partnership profit sharing agreements, as it does to using the company gas card to fill up you car. If it’s in writing, you're at least sort of covered. Verbal, and it's your word against whoever later disagrees with you.

The get it in writing principle also applies to your own record keeping, where you should preserve all records of communications, and make detailed notes. While contemporaneous notes aren’t as good as actual exchanges of communications because they don’t give other parties the opportunity to correct misinterpretations, they can still be very useful if you record conversations in ways that are later difficult to deny. 

2. Say Nothing If There are Allegations

If you do get accused of something possibly fraudulent, say nothing. Don’t try to get into a complex web of admissions and denials by yourself. No, “oh yeah, I took $100, just not $20,000.” By admitting that, you’re much more likely to get pinned for the entire amount. 

As obvious as this say nothing principle might seem, I’ve found there is an almost unstoppable human impulse to explain things. To “set the record” straight. Trust me, nothing you say will help you. 

This say nothing principle applies as broadly as not settling any kind of civil law suit if there remains a pending threat of criminal action. Even if a proposed agreements says the settlement will be confidential, don’t believe it. It still might be held against you. 

3. Don’t Believe the Admit It & We Won’t Report It to Police Claim

On my long list of head shaking “that’s professional misconduct, you know” sighs, is the lawyer ethics rule that you can’t threaten to report someone to the police in order to gain a civil advantage. Yet I see it happen over and over again. 

Just as the police need to exercise some charging discretion when disputes appear to be more civil than criminal in nature, my colleagues in the legal profession likewise sometimes confuse the civil with the criminal, sending my clients threatening letters (which is a legitimate lawyer speciality if only civil consequences are sought), that threaten criminal consequences if my clients don’t do whatever civilly is being claimed. They seem to have missed that chapter in the bar ad materials teaching that they are explicitly prevented from doing this, worded as follows in the Law Society of Ontario’s Rules of Professional Conduct (I think most other law societies have similar prohibitions):

3.2-5 A lawyer shall not, in an attempt to gain a benefit for a client, threaten, or advise a client to threaten, without reasonable and lawful justification:

(a) to initiate or proceed with a charge for an offence, including an offence under

(i) the Criminal Code or any other statute of Canada; 

(ii) a statute of a province or territory of Canada; or 

(iii) a municipal by-law; or

(b) to make a complaint to a regulatory authority.

[1] It is an abuse of the process of a court or, ordinarily, a regulatory authority to threaten to make or advance a charge or complaint in order to secure the satisfaction of a private grievance. Even if a client has a legitimate entitlement to be paid monies, threats to take penal action are not appropriate.

So if you get a letter like this, or are even verbally told by a partner or employer that if you just settle civilly they won't report you to the police, don’t believe it. The civil has nothing to do with the criminal. It is the Crown that controls the investigation and prosecution of crime in Canada. Victims' wishes are not paramount (even if they perhaps should be). So if the police hear through any source about a fraud, charges might be the result, even if you were promised otherwise by the victim. And those charges won’t be an abuse of process, unless you explicitly cut some kind of deal with the Crown. 

4. Fix Anything that Might be Perceived as Fraudulent

If you do accidentally use that corporate gas card to fill up your own car, move as quickly as you can to fix the issue. Criminal fraud requires “intent,” meaning the Crown would have to prove more than just negligence on your part in using a card (or diverting hundreds of thousands of dollars in director bonuses for that matter). 

So if you discover a mistake, or upon further reflection come to believe that an action you took might later be perceived by others to possibly be fraudulent, don’t simply hope that no one notices it. Once you’re challenged on it, it will usually be too late to fix. Rather, move proactively to reimburse your employer for the gas money. Or to pass a board of directors or shareholder resolution to authorize those bonuses. 

5. Hire a lawyer

Lawyers are the best value when they’re used in a preventive medicine kind of way to head off court proceedings, rather than fight those proceedings (civil or criminal) once they’ve commenced. A few hours of a lawyer’s time might be able to kill off any hint of fraud in advance, whereas once the F(raud) word has made its way into the court system, it could take many dozens or even hundreds of hours of lawyer time to erase it. 

The purpose of the lawyer is not just to provide advice, but also to actively engage with the potential accusers to clarify what the evidence really amounts to, and whether the client’s response can put any allegations to rest. 

Gordon S. Campbell assists with the investigation, civil prosecution, and civil & criminal defence of business and other fraud throughout Ontario. He has litigated fraud-related cases as high as the Supreme Court of Canada. Learn more at acmlawfirm.ca, proconductlaw.com and defenceeast.com.