R v Rowley [2012] NZHC 2087 (17 August 2012)

Last Updated: 23 August 2012

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CRI 2010-085-6205 [2012] NZHC 2087

THE QUEEN

v

DAVID INGRAM ROWLEY BARRIE JAMES SKINNER

Hearing: 17 August 2012

Counsel: D La Hood for Crown

M T Lennard for Mr Skinner

M R C Keating for Mr Rowley

Sentence: 17 August 2012

_{SENTENCING NOTES OF THE HON JUSTICE KÓS}

[1] Mr Skinner, you have been found guilty on indictment of 80 counts of dishonestly using a document to obtain a pecuniary advantage, seven counts of wilfully attempting to pervert the course of justice and five counts of knowingly providing false information to the Revenue

[2] Mr Rowley, you have been found guilty on indictment of 75 counts of dishonestly using a document to obtain a pecuniary advantage, seven counts of wilfully attempting to pervert the course of justice and five counts of knowingly

_{providing false information to the Revenue.}

R v ROWLEY & SKINNER HC WN CRI 2010-085-6205 [17 August 2012]

The offending

[3] The circumstances of your offending have been set out in detail in my reasons for verdicts delivered on 20 July 2012.

Fraud charges

[4] You devised a scheme to invoice clients for services (and in some instances goods) where there was either no underlying supply at all or supply to an extent well below the face value of the invoice rendered. The invoices were false.

[5] The scheme was devised in conjunction with a Mr Shaan Stevens, a Wellington accountant. Mr Stevens was your co-accused in 13 of the counts you faced. He pleaded guilty to those counts and was sentenced in the Wellington District Court on 7 November 2011 to 10 months’ home detention and 150 hours of community work. As your counsel accept, your offending is at an altogether different scale to that of Mr Stevens. A higher starting point than the five years the Judge there began with is inevitable in your case. In particular, the discounts for guilty pleas, reparation, cooperation and character that applied to Mr Stevens do not apply to you.

[6] The scheme was sold by you to your clients as a means of sheltering them from tax. It may be helpful to set out how that was to occur:

(a) Let us imagine a client with a notional assessable income of $100, with $33 in income tax to pay. You wrote a false invoice of $100, creating a deductible expense, thus reducing the assessable income to

0 and saving the client $33 tax. The client also gained a false GST

input credit of $12.50.

(b) Had you acted out of the goodness of your hearts, the tax system would have been $45.50 worse off and your clients $45.50 better off.

(c) But you did not do this out of the goodness of your hearts. You charged your clients a fee for writing the invoices. Your clients paid the invoices to a trust account at your business, Tax Planning Services Ltd. Typically you then returned two thirds of the face value of the invoice (or 76 per cent of the GST-exclusive value) to them. You kept the other third as your fee. So, in effect, clients paid you the “tax” and gained the benefit of the illegitimate $12.50 GST input credit.

[7] Now your scheme has failed. It has not sheltered your clients at all. They have had to repay the $33 deduction previously claimed, plus the $12.50 GST input credit. In addition they have had to pay the $33 tax your scheme had sheltered them from in the first place. The net result is that the scheme has increased their tax rate from 33 per cent to 66 per cent. The question of shortfall penalties has not yet been resolved. The net effect on your clients may be much higher than 66 per cent.

[8] The Crown has submitted to the Court that the personal benefit to you together would have exceeded $2.3 million. Your counsel say it is less –

$1.8 million. On any view, Mr Rowley you received a benefit of at least $500,000 and you Mr Skinner at least $1.3 million. It is likely in each case to have been more.

[9] You sought in evidence before this Court to distance yourselves from the invoicing entities. In most if not all cases invoice payments were made into your business trust account. I disbelieved your evidence attributing responsibility to others such as Ms Madondo and Mr Uren. I found that the invoicing entities were under your control.

[10] When the Revenue’s investigations caused your scheme to unravel, you offered explanations for the transactions in terms different to those appearing on the face of the invoices. Instead of “planning services”, “consultancy services” or “sub- contractor services”, clients were said to have acquired carpark licences, apartments in the Wellington CBD and other contractual obligations requiring payments in the invoiced amounts to be made. As I said in my reasons for verdicts, this came as news to all but two of your clients. Those two I found unreliable on details. You produced a number of agreements said to represent the underlying commitments to

these carpark licences, apartment purchases and other contractual commitments by your clients. You then procured expert IT evidence to suggest that those documents had been created variously between 2005 and 2009. No such agreements had been entered by your clients. Your evidence that such agreements had been entered was false. The creation dates for the documents were procured by tampering with metadata on a portable hard drive that you, Mr Rowley, subsequently produced in evidence as an exhibit. That tampering was shown unequivocally by the Crown’s expert evidence.

[11] Your giving of evidence that was perjured, and production of an exhibit with which you had deliberately tampered in the days prior to trial, was disgraceful. It appears that having gamed the Revenue system, you then decided to try and game the justice system as well. Those are games that you have now lost. Were it within my power to uplift your sentences to reflect the disapproval of the Court of that conduct, I would do so. However, the Court of Appeal has said in clear terms that

that is not part of the sentencing function, and naturally I respect that ruling.1 But I

will take that conduct into account in two respects. First it is relevant in assessing any remorse it might be said that you now show. Secondly, it is relevant also in considering any claim to good character, these offences apart.

Attempted perversion of the course of justice

[12] The attempted perversion of the course of justice offending arose when you jointly set about seeking to persuade clients to justify and explain the invoices in terms of the new, fictitious transactions. The clients whom you approached had been summoned to compulsory on-oath interviews with the Revenue under s 19 of the Tax Administration Act 1994. You counselled clients to give explanations to the Revenue which were false. You gave them supporting documents that were also false. The explanations and documents were calculated to deter the Revenue from prosecuting you, or your clients. That plan failed because most clients told the truth to the Revenue.

False information

[13] Finally, the false information charges relating to your personal income tax returns. Those returns were very substantially understated. You knew that to be the case and you intended thereby to evade the assessment and payment of tax.

[14] The Crown case was that you Mr Skinner evaded the payment of tax of some

$410,998 (having paid tax over the five years concerned of just $106,448). And that you Mr Rowley evaded payment of some $101,514 of tax (having paid just a total of

$25,663 over that five year period).

Impact of offending

[15] The impact of your offending has been visited on three groups in the community.

Community

[16] First, there is the impact on the public purse. Direct or indirect evasion of tax has been described as “straight forward theft in the community”.2 In this case the false invoicing, totalling $9,271,650, had a potential resultant tax loss of $2,973,815.

[17] It is said in your submissions that there has been “no loss to the Revenue”. That is because the tax otherwise owed by your clients is in the process of being recovered. I do not accept that submission. Your offending was intended to cause precisely that measure of loss to the Revenue. To the extent that the loss has been averted is only because the illegality of your scheme was uncovered. But for that, the full tax loss would have been worn by the community at large. In any event, it is apparent that the Revenue will face difficulties in recovering all the unpaid tax. Some of your clients are simply not in a position to pay. It may well be that more than half the nearly $3 million tax loss cannot be recovered. What cannot be recovered will be worn by the community. As I note shortly, the whole of the loss is

going to be worn by someone, whether it be the community or your clients. You have made no contribution to its reduction.

[18] You say also in you submissions that the tax loss has been offset by tax paid on the proceeds of the frauds. Either by tax paid by the invoicing entities, or paid by yourselves. Again, I do not accept that submission. It is doubtful that any part of the proceeds of these frauds has resulted in material and genuine tax paid to the Revenue that has offset unpaid tax payable by your clients and sheltered by the false invoices. The invoicing entities claimed substantial deductions in their own right, and generated little net assessable income. And, as we have seen, you gentlemen have paid very little tax yourselves in the five years with which we are concerned. Both of you are now bankrupt. It is doubtful whether the Revenue position will be made good by you.

Clients

[19] The second group in the community impacted by your actions is your clients. Mr Lennard has said clients paid a fee

... for what they must have known was (at best) an aggressive tax avoidance scheme. The more sophisticated among them cannot have believed that the scheme was without substantial risk.

That is I think a somewhat lenient perspective. Your clients were paying invoices for services they knew they had not received. Most knew they were thereby gaining tax deductions and GST input credits. Many must have known or suspected that such an arrangement was illegal. A number said in evidence that they asked for and obtained an assurance that the scheme was legitimate. They were too easily satisfied, and they are now paying the price. Other clients, I accept, were credulous and did not understand the position. Some even thought they were paying their tax to the Revenue through you. It is perhaps not coincidental that the amount you retained from the invoice payments was approximately 33 per cent of their face value.

[20] Be all that as it may, none of that mitigates your culpability. As we have seen the effect of your scheme has been to make your clients have to pay their tax twice.

Once to you and now, correctly, to the Revenue. I have seen a number of victim impact statements that have been filed in Court. I pay particular regard to those from the more credulous among your clients. Those clients have paid you 33¢ in the dollar, and are now paying the Revenue 33¢ or more in the dollar as well.

[21] In simple terms, the loss to the Revenue has been shifted instead to your clients. It is therefore unsurprising that some of them describe the effects of your actions as “betrayal” and akin to “theft”. You have now spent the 33¢ in the dollar they paid you. There appears little prospect of them recovering it from you.

Your families

[22] The third group on whom your offending has impacted is of course your families. Each of you have made submissions about the consequences of your offending on your families. Mrs Skinner will shortly be homeless. I have read moving letters from your families. In particular from your daughter Victoria, Mr Skinner. Each of you has a wife and teenage children who will not now have a husband and father around them for some years. Each of your families have suffered real hurt and humiliation as a result of your greed. Either you did not think of them when offending, or you decided to take the risk. They are now paying a very heavy price for your callousness.

The pre-sentence reports

Mr Skinner

[23] Mr Skinner, you are of course a former Revenue inspector. Your pre- sentence report prepared by the Department of Corrections probation officer tells me that you continue to maintain your innocence and that you deny all knowledge of any wrongdoing. It reports that you “refute all charges laid against [you]”. You are reported as saying that “at no stage did we believe that our advice was illegal or thought that the transactions were illegal. Had we known, we would not have done it.” Elsewhere you are reported as saying that the convictions are “spurious”.

[24] I can only say to you that this shows a breathtaking lack of insight into your offending. You seem to fail to appreciate the overwhelming evidence presented by the Crown witnesses, in particular your own clients, demonstrating beyond any possible doubt that false invoices and false transaction documents to conceal that fact were prepared by you or at your behest. Your actions once the Revenue started investigating, and once this trial hove into view, were anything but the actions of a man who believed himself to be innocent.

[25] I note that the report states that you are not in a position to make substantial reparation.

Mr Rowley

[26] Mr Rowley, your pre-sentence report also shows a profound lack of insight. You are reported as saying your actions were “just trying to help our clients with their ability to make a profit and increase their cash flow and, at the same time, assist other clients with the profits they had .... we were employed by our clients to push the envelope”. You say that you honestly thought that the transactions were valid and “it never entered my head that they could be considered as fraud”. I find that observation simply remarkable.

[27] The report states that you presented yourself as simply dealing with the “paper work”, and as unaware of negotiations undertaken by Mr Skinner. That is a nonsensical self-perception. You generated the invoices. You knew there was no underlying genuine supply. You knew that you were not so much pushing the envelope, as setting fire to it. And you were principally responsible for tampering with the hard drive in an attempt to lend some credibility to the transactional documents which had been created to conceal the fraudulent invoicing. This you did in the days immediately before trial, creating a false foundation for expert evidence as to the creation dates of the documents. In this enterprise you failed because of your failure to appreciate that a portable hard drive contains a strictly chronological transaction log. It showed, as a result of your tampering, dates jumping around all over the place in the days immediately prior to trial.

[28] More to your credit I do note two character references, one of which is from your father, which say that you accept the verdicts of the Court. I note, too, that you have clearly been a good family man and have made a helpful contribution to some community activities.

[29] As with Mr Skinner, it is said you are not in a position to make substantial reparation.

Purposes and principles of sentencing

[30] I am required by the Sentencing Act 2002 to keep in mind a number of purposes and principles of sentencing. Section 7 requires me to have regard to the need to hold you accountable for the harm done to victims of your offending, and the need to promote a sense of responsibility for, and acknowledgement of, that harm. I need to provide for the interests of the victims of your offending. I need to denounce your conduct and I need to deter you and others like you from committing the same or similar offences in the future. I am also required to take into account the need to assist in your respective rehabilitation and reintegration into society in due course.

[31] In terms of s 8 principles, I must take into account the gravity of your offending, including your individual degrees of culpability. I must have regard to the seriousness of the types of offences committed by comparison to other types of offending, as indicated by the maximum penalty prescribed. I must consider the general desirability of consistency with appropriate sentences available. I must also consider the victim impact statements that have been provided to the Court. And then I need to impose the least restrictive outcome that is appropriate to the circumstances of each of you. I am also to take into account your personal circumstances.

Starting point

[32] I agree with the Crown submission that the substantive fraud charges are to be treated as the lead charges for sentencing purposes. I agree, also, that the attempt to pervert the course of justice offences are in their own right significantly culpable

acts. They are linked to the substantive frauds, because they involved attempts to conceal those frauds. But the criminality of those acts is distinct. Those offences will, therefore, attract a discrete cumulative sentence, uplifting the sentence for the lead fraud charges.

[33] I also agree with the Crown submission that the personal income tax evasion charges do not materially add to the totality of criminality in this case. They will be dealt with by the imposition of concurrent sentences.

[34] In short:

(a) I will determine the sentence appropriate to the fraud offences that you each have committed;

(b) I will then uplift those sentences for the attempted perversion of the course of justice offences, thus producing a total indicative term of imprisonment;

(c) you will also receive sentences in relation to the tax evasion charges, but the sentences for those offences will not add to your term of imprisonment; and

(d) I will then consider whether any factors personal to you demand increase or reduction of the starting point sentences.

Dishonest use of documents

[35] There is no tariff case for major fraud, including under s 228. The Court of Appeal in R v Varjan3 noted that the circumstances and culpability in offences of dishonesty vary widely. The Court said:4

Culpability is to be assessed by reference to the circumstances and such factors as the nature of the offending, its magnitude and sophistication; the type, circumstances, number of victims; the motivation for the offending; the

3 _{R v Varjan CA97/03, 26 June 2003.}

4 At [22].

amounts involved; the losses; the period over which the offending occurred; the seriousness of the breach of the trust involved; and the impact on victims.

[36] The present case is, as the Crown submits, replete with aggravating features associated with the offending per se. First, your offending was deliberate and premeditated. Secondly, it extended over a period of approximately five years. Thirdly, it was undertaken repetitively. Fourthly it was sophisticated, involving at the outset, and then subsequently, efforts to conceal the true nature of the transactions involved. Fifthly, it involved serious breaches of trust in relation to those of your victims who genuinely believed they were participating in legitimate tax planning schemes. It also involved breach of the trust placed in you by the Revenue. You had been given preferential status as tax agents, with all the dispensations and privileges going with that status. Seventhly, your actions have caused substantial harm and loss. I have already addressed the extent of harm to the Revenue, the exact amount of which is perhaps not known. But it is clear that by your actions you intended the Revenue (and thereby the community) to incur a loss just a few thousand dollars short of $3 million. As we have seen, the major part of that intended tax loss was in fact diverted to your own interests. Although the tax loss has been defrayed by voluntary disclosure and reversal by your clients, the effect of that has been simply to shift the loss from the Revenue to them. The loss, either to the community or clients, remains of the order of $3 million. None of it has been recovered from you.

[37] Both defence counsel submit that a starting point of four years is appropriate for the fraud charges. I consider that unrealistic in the circumstances of this case.

[38] Bearing in mind the cautions as to comparisons expressed in Varjan, I have considered previous cases cited by the Crown and defence counsel. The most useful authorities are four. First, in R v Hunter5 the Court of Appeal considered appropriate a five year starting point in a case involving similar offending by a tax consultant, with substantially more charges (442), but far smaller personal benefit (just $5,000

_{over and above professional fees). Secondly, in Lindup v Inland Revenue}

5 R v Hunter (2002) 20 NZTC 17,784 (CA).

Department6 Wild J approved on appeal a five and a half year start point on nine counts of using a GST return for pecuniary advantage. As in this case, fabricated invoices and other documents were prepared to conceal the offending. The fraud value there was $866,774. The ultimate tax loss after recovery was $634,273. Those two cases are less serious than this one.

[39] The third case is R v Dhillon.7 There the Court of Appeal approved a starting point of seven years in a case involving 50 counts of tax evasion8 involving false contractors’ invoices. The tax evaded was perhaps $3.3 million, a sum similar to that evaded in this case. The exact amount was unclear however, and may well have

been considerably less. At that time the maximum penalty available for the individual offences was five years. The trial Judge took an overall starting point of seven years’ imprisonment (based on the totality of offending across the 50 counts). The Court of Appeal accepted that figure, although it revised the sentence as between counts to reflect the statutory maximum. The final sentence was six and a half years.

[40] The fourth case is R v Patterson.9 The fraud there was somewhat more sophisticated than in this case. Mr Patterson had used over 100 false identities to fraudulently gain over $3.4 million in welfare benefits. He pleaded guilty to ten representative counts. The High Court took a starting point of nine and a half years. The Court of Appeal concluded that was not inappropriate. Indeed it said it could have been higher.

[41] I do reach the view that there is a slightly different degree of culpability as between each of you. I do not accept the self-serving suggestion made by you Mr Rowley, reported in your pre-sentence report, that you were a mere backroom boy unaware of what was going on. But it is clear that the frauds were led by Mr Skinner. Mr Skinner was the promoter. He dealt with most of the clients. He had the gift of the gab, as the covert iPhone recording made by one of his clients demonstrated. But he would not have been able to promote the scheme effectively

_{without your assistance undertaking the documentation. He received that from you}

6 _{Lindup v Inland Revenue Department High Court Nelson CRI-2008-442-0013, 16 July 2008.}

7 _{R v Dhillon [2009] NZCA 597 (CA).}

8 _{Tax Administration Act 1994, s 143B(2).}

9 R v Patterson [2008] NZCA 75.

Mr Rowley and it was fully knowing assistance. The major point of distinction between is that a much greater part of the fraudulent profit was received by Mr Skinner. The minor point of distinction is that you Mr Rowley have been convicted of five fewer counts than Mr Skinner.

[42] Bearing in mind the aggravating factors that I have listed in [36], the cases reviewed in [38] – [40] and the relative culpability of each of you just discussed, my decision is to impose as a starting point a sentence of seven years’ imprisonment on you Mr Skinner, and six and a half years’ imprisonment on you Mr Rowley.

Attempted perversion of the course of justice

[43] As the Court of Appeal has noted in R v Hilman10 any attempt to dissuade a witness from giving evidence, or to persuade a witness to give false evidence, strikes at the administration of justice and must be met by the courts with a stern response. In this case you knew that a Revenue investigation was on foot and that it might result in criminal charges being brought against you or your clients. You supplied false information to clients, particularly as to the supposedly “true” nature of the transactions underlying the false invoices. This you did before clients were interviewed under compulsory s 19 on-oath interviews. I found in my reasons for verdicts that you did so with the intention of deflecting the Revenue from prosecuting either you or your clients. As I have noted already, these actions involved discrete and serious criminality on your part. It requires a separate and substantial sentence of imprisonment in addition to that imposed on you for the frauds which you have committed.

[44] The Crown submits that a sentence of three years’ imprisonment for this offending would be appropriate were it a sentence in isolation. I agree with that assessment. The Crown acknowledges that “some adjustment” is necessary for totality. That is, a sentence that is less than it would otherwise be, added cumulatively to the sentence you receive for your fraud offending and I agree with

_{that acknowledgment.}

10 R v Hilman [2005] 2 NZLR 681.

[45] For the defence, your counsel each submit that an uplift of one year on the fraud charges is appropriate.

[46] In setting your sentences, I bear in mind the totality principle and the substantial sentences you are receiving on the fraud charges. I do so despite the fact that this criminality for attempted perversion of the course of justice is in substance separate in nature and degree. I also bear in mind that I am charged by the Sentencing Act to impose the least restrictive outcome appropriate to your circumstances.

[47] In those circumstances I adopt eighteen months’ imprisonment for each of you for your attempted perversion of the course of justice, that is in addition to the indicative sentences for the fraud charges.

Tax evasion charges

[48] The Crown has accepted that no further cumulative sentence is required for the charges of personal tax evasion. The Crown accepts that those offences were bound up in the fraud offending. Obviously your counsel accept that submission. On the basis of the decisions in R v Dukich11 and R v Smith12 and having regard to the differing degrees of tax evaded by each of you, sentences of two and a half years’ imprisonment for this offending by you Mr Skinner, and two years in the case of you Mr Rowley are appropriate.

[49] But those sentences are to be served on a concurrent, rather than cumulative, basis. So unlike the sentences for your attempted perversion of the course of justice, they will not be added to your sentences for fraud.

Conclusion

[50] It follows that the starting point for you Mr Skinner is a total of eight and a

_{half years’ imprisonment and for you Mr Rowley a total of eight years.}

11 _{R v Dukich [2012] NZCA 231.}

12 R v Smith [2008] NZCA 371.

Aggravating and mitigating factors

[51] Having set the appropriate starting points, I next consider whether those indicative sentences should be altered to have regard to aggravating and mitigating factors personal to each of you.

Aggravating factors

[52] The Crown accepts that there are no relevant aggravating factors personal to you. There is therefore no reason to increase the starting points. The only question becomes whether the starting points should be reduced having regard to mitigating factors.

Mitigating factors

[53] It does not appear that any discount is sought, at least on your written submissions, on the basis of remorse. Nor could it be, given the stance adopted by each of you reported in the pre-sentence reports. And nor could it given your deplorable conduct at trial.13 I accept the Crown submission that you have displayed no genuine remorse in relation to your offending, and none that might qualify for a discount from sentence.

[54] Much is made for you by your counsel as to your previous good character. But I am not prepared to extend you the benefit of any discount for that. Your prior good character might have come into play had we just been concerned with offending that occurred in 2005, say in relation simply to Ms Ertel’s tax affairs. But once we pass that point and enter the web of premeditated, prolonged and persistent offending that occurred here, a submission as to your previous good character simply

ceases to have real meaning. As the Court of Appeal said in R v Zhang:14

It was submitted ... that the absence of any previous convictions in the appellant’s case was a matter which should be taken into account as a mitigating factor as required by s 9(2)(g) namely, evidence of the

13 _{See at [11] above.}

14 R v Zhang CA437/03, 3 June 2004 at [26]; approved again by the Court of Appeal in R v Shone

[2009] NZCA 183 at [37].

defendant’s previous good character ... This was not the more common case of a first offender being sentenced for a single offence. Any concession to be gained by reason of a previously unblemished record should have been and was dispelled by the prolonged and premeditated nature of the offending in this case.

[55] Furthermore, as I have said already your conduct during the course of trial, giving false evidence on oath and tampering with an exhibit, is inconsistent with my treating you as men of good character.

[56] Finally, no discount is available for early or any pleas of guilty, or for any substantial and effective offer of reparation.

Conclusion

[57] It follows from this that the indicative starting points by way of sentence will be neither increased nor discounted.

Sentence

[58] Stand please.

[59] Barrie James Skinner, I sentence you to eight and a half years’ imprisonment (being seven years for fraud, a further and cumulative eighteen months’ imprisonment for the your attempted perversion of the course of justice, and a concurrent two and a half years for tax evasion).

[60] David Ingram Rowley, I sentence you to eight years’ imprisonment (being six and a half years’ imprisonment for fraud, a further and cumulative eighteen months for your attempted perversion of the course of justice and a concurrent two years for tax evasion).

[61] Consistent with the approach of the Court of Appeal in R v Dhillon,15 I have decided that no minimum period of imprisonment will be imposed. These sentences

_{are sufficient in themselves to condemn your conduct and hold you accountable, and}

15 R v Dhillon [2009] NZCA 597 (CA) at [53].

to deter others. I am content to allow the parole process to determine when it is appropriate that you be released from prison back to your families. Whether early parole is achieved will depend in part on your gaining a more realistic appreciation of the serious criminal conduct that you have committed.

[62] Stand down.

Stephen Kós J

Solicitors:

Crown Solicitor, Wellington

Macalister Mazengarb, Wellington