Why Canada is a Haven for Fraud
United States law enforcement continually complain about Canada being a haven for fraud, especially telemarketing scam criminals who use the technology associated with an open border to cheat Americans out of money.
Is Canada's reputation as a haven for fraud justified?
In July 2002, the Competition Bureau, which regulates misleading advertising in Canada, "announced today that three people and four corporations were charged under the misleading representation and deceptive marketing practices provisions of the Competition Act. These charges relate to unsolicited deceptive mailings promoting participation in the purchase of lottery tickets.
Charged were two Toronto corporations, HMS Direct Limited and Hallstone Products Limited, their director David Stucky and employee Sylvia Carbone. Also charged were two Vancouver corporations, 483775 B.C. Limited and Ravenshoe Services Limited, and their director Tom Taylor. The investigation into this matter is ongoing and further charges, including other personal charges, could follow.
The mailings in question were sent out under the names Canadian Lottery Buyers Association, International Lottery Commission and the International Monetary Funding. Several million of these mailings were sent to residents of the United States, United Kingdom, Australia and New Zealand.
The mailings asked recipients to send a payment to participate in various international lotteries. The Bureau alleges that the mailings exaggerated the amount that consumers could win, as well as their chances of winning, that the mailings falsely represented an association with the governmental body issuing the lottery tickets and that consumers had already won substantial sums of money."
What was the result of this criminal charge against Mr. Stucky ?
In a stunning decision, Justice Gans accepted "Mr. Stucky's position that the words "to the public" must be interpreted to mean "to persons in Canada" and that in the absence of any evidence showing that the subject representations were made to any person in Canada, the Crown had simply failed to prove an essential element of the offences contained in the indictment and Mr. Stucky must be acquitted on all counts."
Justice Gans reviewed the legislative history on the misleading advertising section and concluded that
"the 1999 and 2002 amendments make it clear that there was and is a distinction to be made between representations described in s. 52(1) and those that are made by telemarketers (s. 52.1)[36] and those contained in regular and electronic mail promotions (s. 53).[37] In ss. 52.1 and 53, the actions of the person making the representation are not circumscribed by national boundaries since the words "to the public" are conspicuous by their absence. It is apparent that the addition of these two sections and others with an international cast to them, including Part III of the Competition Act, which deals with the creation of a sophisticated mutual legal assistance regime, underscore Canada's understanding of and commitment to issues surrounding international commerce that can be undertaken by telecommunications or by the click of a mouse.
[56] In my view, had Parliament intended to broaden the reach of the Bureau in respect of s. 52(1), it could have done so by deleting the words "to the public" wherever found.
[57] Such an amendment, had it occurred, would then have placed s. 52 on the same footing as ss. 52.1 and 53, in that each section would have an extraterritorial reach to it without restriction. But the phrase was not deleted from s. 52, thereby creating a distinction between an interactive telecommunication (s.52.1), and, a representation made "by any means whatever" (s. 52)."
Sections 52.1 and 53 regulate telemarketing and deceptive lotteries.
Justice Gans contrasted section 52.1 and 53, in which the words "to the public" don't occur, with section 52 in which the words "to the public do occur". He concluded that in the former, section 52.1 and 53 are meant to protect the world at large from fraud originating in Canada, but section 52 is aimed only at protecting fraud against the Canadian public.
Is he correct? I don't think so. Section 52 is primarily concerned with advertising to the public, it is a generalization of the tort of misrepresentation. When you lie to the public, section 52 removes one of the key elements of the usual tort of misrepresentation, that of reliance. But with representations made to the public, it is not a defence to say that the public didn't rely upon the representations in the ad. The question is how wide must the circulation be, if it is to the public.
Contrast this with section 52.1 and 53, in which representations may be made to individuals privately, or who came from a broker's list, or in response to an email opt in list. It is not an element of the offence that the representation be made to the public. These statutory offences are not the public generalizations of some common law tort and so there is no need to create an "to the public" as part of the offence.
