Is it possible to recover funds lost due to fraud?

The issue of recovering money lost to fraud is one of the most difficult and painful aspects for victims of financial crime in Canada. Unfortunately, the reality is that full compensation for lost funds is far from always possible, even in a country with one of the most advanced consumer protection systems in the world. Studies show that only a small proportion of fraud victims receive full compensation for their losses, and even when courts issue restitution orders, it is often left to the victims themselves to enforce them.

Since 2010, Ontario courts have issued restitution orders totaling nearly half a billion dollars for fraud victims, but the provincial government does not track how much of that money has actually been paid to victims. According to CBC Toronto, all of the fraud victims interviewed who had been awarded restitution by the courts said they had not received a single cent from the convicted fraudsters. This highlights a systemic problem: although Canada's legal system provides tools for restitution, their practical application is often ineffective.

The situation is compounded by the fact that most fraudsters have already spent or hidden their ill-gotten gains by the time they are exposed. According to Norman Grout, founder of Investigation Counsel PC, a law firm specializing exclusively in representing fraud victims, “in most cases, the money is long gone.” This makes the reimbursement process particularly difficult and often fruitless.

Reimbursement mechanisms through the banking system

One of the most effective ways to get your money back in Canada is through the credit card chargeback system. This mechanism allows cardholders to dispute unauthorized or fraudulent transactions directly through their bank. Visa, Mastercard, and American Express have zero liability policies, which means that cardholders are not liable for truly unauthorized transactions.

The chargeback process for credit cards has clear time limits: Visa provides protection for up to 540 days from the date of purchase, while Mastercard sets a limit of 120 days from the date of purchase or receipt of evidence of counterfeiting. If the goods are confirmed as counterfeit or pirated by the copyright holder before law enforcement agencies, the consumer is entitled to a 100% refund.

However, the chargeback process has its limitations. Consumers must typically dispute the payment within 30-45 days of the statement date, and both the bank and the merchant have set deadlines for responding. The entire process can take anywhere from six weeks to six months, and if the merchant loses the chargeback, they not only lose the money from the dispute, but also pay chargeback fees and possibly lose the value of the item itself.

For debit cards, protection is more limited, but many Canadian banks still offer some level of fraud protection. The Electronic Funds Transfer Act in various provinces sets minimum consumer protection standards for electronic transactions, including limits on liability for unauthorized debit transactions.

Criminal restitution and its challenges

The Canadian Victims Bill of Rights, which came into effect on July 23, 2015, gives every victim of crime the right to ask the court to consider issuing a restitution order when sentencing the offender. A restitution order requires the offender to compensate the victim for financial losses incurred as a result of the crime, but can only cover losses incurred up to the time of sentencing.

The court may order restitution to cover various types of financial losses suffered by the victim, including:

  • property damaged or lost as a result of the crime
  • physical injury or psychological harm
  • reasonable expenses for temporary housing, relocation, food, childcare, and transportation
  • costs of restoring the victim's identity or repairing credit history due to identity theft or fraud

However, restitution cannot be awarded for pain and suffering, emotional distress, or other types of damages that can only be assessed in civil courts. Restitution amounts must be easily calculable and not highly contentious.

The main problem with criminal restitution is its enforcement. If the offender does not pay restitution by the date specified in the court order or does not comply with the payment plan, the victim can file an order with a civil court and use civil enforcement methods to collect the unpaid amount. In effect, the burden of enforcement is shifted to the victims, who have already suffered from the crime.

Civil litigation as an alternative

Some lawyers recommend that victims of fraud try the civil system first, as it can move much faster than the criminal system. Norman Grout advises his clients: “If we can start tracking the money and try to freeze the assets before the crook knows his case has been uncovered, that's the best chance for recovery.” Civil litigation gives the victim complete control over the process — they can directly initiate legal action against the fraudster, negotiate directly with the offender's lawyers, and seek compensation for their losses. This process also allows for settlement negotiations, which can provide compensation more quickly than a lengthy criminal trial.

If the fraudster is convicted in a criminal case, there is a presumption of liability in a civil case for damages, and the victim of fraud can go to court for a summary judgment, which is a much shorter and less expensive process. In summary judgment cases, the victim only has to prove the actual amount of the loss to the court.

However, civil litigation has a significant drawback: cost. According to Grout, his firm advises clients that the civil route is not cost-effective unless they have lost at least $250,000. This means that civil litigation remains inaccessible to most victims of fraud.

Specialized compensation funds

In some sectors, there are specialized compensation funds for victims of fraud. In Quebec, consumers who have been victims of fraud after June 12, 2015 can apply to the Fonds d'indemnisation Autorité des marchés financiers for compensation. The maximum compensation is $200,000 per claim.

To be eligible for compensation from this fund, the claim must meet three criteria:

  • The consumer must have dealt with a representative who was duly certified by the Authority
  • Or, if the representative was not authorized to act by the Autorité des marchés financiers, the claim may be admissible if the consumer had already done business with the representative while the representative was authorized to practice
  • the fraud occurred within two years of the loss of the right to practice

In British Columbia, the Civil Forfeiture Office may provide compensation to “eligible victims”—individuals who have suffered financial losses as a result of certain illegal activities related to funds confiscated by the CFO in connection with the same illegal activities. This includes individuals who have been directly harmed by the fraudulent actions of others, such as stock fraud.

Some provinces, such as Saskatchewan, Alberta, and Prince Edward Island, have government restitution programs that help track restitution orders and enforce them on behalf of victims. Unfortunately, such assistance is not currently a federal requirement, and most provinces do not have such programs.

Deposit insurance and its limitations

The Canada Deposit Insurance Corporation (CDIC) automatically insures eligible deposits up to $100,000 in the event of the bankruptcy of a member financial institution. However, it is important to understand that deposit insurance does not cover losses due to fraud or theft.

CDIC covers:

  • savings and checking accounts
  • Guaranteed Investment Certificates (GICs) and other term deposits
  • foreign currency

But it does not cover:

  • mutual funds
  • stocks
  • bonds
  • Exchange Traded Funds (ETFs)
  • cryptocurrencies
  • Losses due to fraud or theft

This means that if your funds were stolen by fraudsters from your bank account, CDIC will not provide compensation. Deposit insurance is designed solely to protect against the bankruptcy of financial institutions, not against criminal activity by third parties.

The problem of “recovery scams”

Particularly painful for victims is the emergence of so-called “recovery scams” — secondary scams where fraudsters promise to help recover funds lost in the initial scam for a fee. In 2023, Canadians lost more than $1.6 million to such secondary scams.

These scammers often pose as representatives of:

  • Canadian Anti-Fraud Centre
  • police
  • government agencies
  • financial regulators
  • investor protection organizations

They may have detailed information about the initial fraud, including the victim's personal information and the amount of money lost, which makes their offers more convincing.

The Canadian Investment Regulatory Organization warns that legitimate lawyers and recovery agencies typically work on a commission basis from successfully recovered funds and do not require advance payments. You should never pay upfront fees for recovery services, especially if payment is required in cryptocurrency, gift cards, or wire transfers.

Insurance claims and their peculiarities

In the insurance sector, the situation with compensation for losses from fraud is more complicated. Insurance companies have the right to cancel a paid claim if they discover:

  • overpayment
  • new information that significantly affects the validity or amount of the original claim
  • violation of the terms of the insurance policy or fraud

The Insurance Bureau of Canada estimates that approximately 5-10% of claims are outright fraud or have a fraudulent component. Insurance fraud costs Canadians over $1 billion a year in additional insurance premiums.

If an insurance company discovers fraud, it will likely:

  • deny all coverage
  • report the incident to the police for criminal prosecution
  • may sue for reimbursement of any administrative costs or actual payments related to the fraud

Innovations in the fight against fraud

Canadian organizations are actively developing new approaches to fraud prevention and reimbursement. Project Chargeback, an initiative of the Canadian Anti-Fraud Centre, aims to increase refunds and reduce consumer losses, as well as reduce the overall profits organized crime receives from the sale of counterfeit and pirated goods.

Project Chargeback's strategy is based solely on existing credit card policies regarding counterfeiting, providing:

  • 540 days of protection from the date of purchase for Visa
  • 120 days for Mastercard

The program provides 100% refunds to victims if the goods are confirmed as counterfeit or pirated by the rights holder before law enforcement agencies.

The role of technology in reimbursement

Modern technologies are playing an increasingly important role in detecting and preventing fraud, which indirectly helps to protect consumers' funds. Banks and payment processors use machine learning and artificial intelligence to detect suspicious transactions in real time.

Biometric verification, behavioral analytics, and anomaly detection systems are becoming standard tools for financial institutions. While these technologies cannot guarantee the return of funds that have already been lost, they significantly reduce the likelihood of successful fraudulent transactions.

Prospects for improving the restitution system

In December, the federal Standing Committee on Justice and Human Rights proposed that the government take a more active role in ensuring the enforcement of restitution orders. The committee's report, “Improving Support for Victims of Crime,” recommended that the Department of Justice work with provinces and territories to reach agreement on effective means of assisting victims in enforcing restitution orders.

Such initiatives could significantly improve the restitution situation, relieve the burden on crime victims, and shift the responsibility for enforcing court orders to government agencies that have more resources and authority to enforce collection.

Practical tips for maximizing your chances of restitution

For victims of fraud hoping to recover their funds, it is critical to act quickly and methodically. Immediately notifying the bank of suspicious transactions may allow them to freeze the funds before they are transferred to the fraudsters. Keeping all documents, emails, text messages, and other correspondence is essential for any future legal proceedings.

Simultaneously filing a complaint with the police and the Canadian Anti-Fraud Centre creates official documentation that may be critical for insurance claims and chargeback procedures. Even if a criminal investigation does not result in an arrest or conviction, an official police report can support claims in civil court.

For victims of significant sums, it is worth considering consulting with a lawyer who specializes in fraud recovery, even if civil litigation proves impossible. Such lawyers can provide advice on the best recovery strategies and help assess the prospects of success for different approaches.

Conclusion

The reality of recovering funds lost to fraud in Canada remains difficult and often painful for victims. While there are several mechanisms for recovery—from credit card chargebacks to criminal restitution and civil litigation—none of them guarantee full recovery. Preventive measures and rapid response to suspicious activity remain the most effective. For those who have already fallen victim, it is important to understand all available options and realistically assess the chances of success when deciding on further action.