Can We Really Prevent Commercial Fraud?

According to PwC's Global Economic Crime and Fraud survey, 55% of Canadian companies were victims of economic crime in 2018[1].

Although this situation is upsetting due to the large numbers of affected people, it raises awareness of an increasingly widespread type of economic crime. Considering the increased public awareness of the issue, it is useful not only to look at the different types of fraud, but also to identify ways to prevent economic crime and to outline possible solutions. 

Business Scams, More Widespread Than We Think 

Fraud is defined only in general terms in both criminal and civil laws. It includes several techniques and scams that are important to know about in order to better prevent them. The Canadian Anti-Fraud Centre² lists the various types of commercial fraud that Canadian companies are exposed to, which include:

• "Head office" spoof;
• Fake business manager scams;
• Electronic fraud in the financial sector; and
• Ransom demands.

"Head Office" Spoof

First, the "Head Office" spoof involves pretending to work at a company's head office in order to obtain money or office supplies, for example. The fraudster may also claim to have problems with the activation of prepaid cards. 

Fake Business Manager Scams and Fraud in the Financial Sector

Second, companies are often targeted by two types of electronic fraud, namely fake business leader scams and electronic fraud in the financial sector. In the first case, fraudsters create an email address similar to that of the CEO or CFO, or by compromising and using their email, to mislead an employee into authorising a bank transfer. In the second case, fraudsters compromise emails from customers at financial institutions to request that funds be transferred from one bank account to another. 

Canadian companies must remain vigilant, as they are the targets of several other scams, such as office supplies scams, directory and extortion scams.

Ransom demands

Finally, we could not ignore the hostile server takeovers through cryptocurrency ransom requests. Increasingly widespread, the only way to fully protect yourself from them is to use sophisticated technological tools. Specialised technology firms can help you minimize the related risks.

Employee Training to Reduce Vulnerability to Scams

Cybercrime has become the most reported economic crime by Canadian companies.³ Therefore, it is important to learn how to reduce potential vulnerabilities to prevent identity theft and fraud. Be vigilant when receiving unsolicited calls or emails requesting personal or financial data, periodically verify bank account statements, know your billing cycles and ensure confidential documents are shredded. The holiday season is particularly favourable for such attempts.

Employee training is also recommended focused on the different techniques used in commercial fraud, since most require human decision-making. Many companies have internal ethics and compliance programs, but few have ongoing measures in place to ensure ethical decision-making by their employees.⁴

What to Do If You Become a Victim of Fraud? 

Technology is also a good way to prevent commercial fraud. However, caution must be exercised, as technology can facilitate the work of fraudsters by allowing them to target companies on several levels while remaining anonymous.⁵ Therefore, new technologies implemented internally must be protected against the risk of fraud. Employees must also receive training to learn best practices for using these technologies and to avoid threats. 

Finally, if you become a victim of commercial fraud, start by compiling all the information about the fraud. Then report the fraud to local police and contact the Canadian Anti-Fraud Centre. Also contact your financial institution if money has been transferred since all Canadian financial institutions have sophisticated security departments. In addition, if the fraud was committed online through a website, be sure to report the incident to the website in question. 

Simple administrative measures can also be put in place. For example, the number of signatories authorised to the account for large payments or transfers can also be used as a means of protection, even if it may be demanding from a management perspective. 

What Remedies Do Companies Have in Response to Fraud? 

It is important for companies to be aware of their options when fraud occurs. Some additional remedies are very useful in the context of corporate fraud. 

First, an Anton Piller injunction ensures the preservation of evidence. This injunction, named after Anton Piller Kg v. Manufacturing Processes Ltd. is an order that may be made by the Superior Court pursuant to its general powers under articles 25 and 49 of the Code of Civil Procedure (hereinafter "C.C.P."). With this order, the victim of fraud can go to the fraudster's premises in order to preserve any evidence that may be relevant to the dispute. It is therefore essentially a court order providing the right to search and seize the fraudster. 

Companies may also avail themselves of the right to a seizure before judgment provided for in article 518 of the C.C.P. Under this provision, the victim of fraud "with the authorisation of the court, [...] may seize the defendant’s property before judgment if there is reason to fear that recovery of the claim might be jeopardized without the seizure".⁶ The purpose of seizures before judgment is to safeguard property. Speed of response is also important and, in an ideal situation, can lead to the freezing of the funds in the transit account.

In conclusion, a better understanding of the means of prevention and the resources at your disposal can help your company be better prepared and organised to face the various types of fraud.

 ¹PriceWaterhouseCoopers, Pulling fraud out of the shadows: Global Economic Crime and Fraud Survey 2018: Canadian insights, Ontario, 2018, p. 5

²Canadian Anti-Fraud Centre, "Business Scams", Government of Canada, January 24, 2019, online: http://www.antifraudcentre-centreantifraude.ca/fraud-escroquerie/business-commerciales-eng.htm

³PriceWaterhouseCoopers, supra, note 2, p. 6

⁴PriceWaterhouseCoopers, supra, note 2, p. 23

⁵Id. p.19

⁶Code of Civil Procedure, CQLR, c. 25.01, art. 518