Ontario Court of Justice

Date: 2016-01-07

Court File No.: Central East - Newmarket 4911-998-12-04751-02; 4911-998-12-07774-00

Between:

Her Majesty the Queen

— AND —

Kenneth James

Before: Justice David S. Rose

Heard on: June 15, 16, 22, 23, 25, September 17, 18, 21, 22, 24, 25, 29, November 3, 2015

Reasons for Judgment released on: January 7, 2016

Counsel:

• K. Wilson, B. Gluckman and Y. Pressman — counsel for the Crown
• S. Bergman and W. Cunningham — counsel for the accused Kenneth James

ROSE J.:

Charges

[1] Kenneth James and James and Associates stand charged with the following offence between January 1, 2009 and June 7, 2012:

1. Possession of Property Obtained by Crime, namely $3,000,000 in Canadian funds, contrary to s. 354(1)(a) of the Criminal Code. Count 1 on Information 12-04751.

Kenneth James stands charged with the following offences between January 1, 2009 and June 7, 2012:

2. Deal with $3,000,000 in Canadian funds, knowing it to be Property Obtained by Crime with intent to conceal, contrary to s. 462.31(1) of the Criminal Code, Count 2 on Information 12-04751;

3. Defraud the Government of Canada Over $5,000, contrary to s. 380(1) of the Criminal Code, Count 3 on Information 12-04751;

4. Unlawful Export of a Controlled Substance between May 25, 2010 and August 31, 2011, contrary to s. 6(1) of the Controlled Drugs and Substances Act, Count 1 on Information 12-07774;

5. Deal with $169,000 between May 25, 2010 and August 31, 2011, knowing that property to be obtained by crime, contrary to s. 462.31(1)(a) of the Criminal Code, Count 2 on Information 12-07774;

6. Possession of Property Obtained by Crime between May 25, 2010 and August 31, 2011, contrary to s. 354(1)(a) of the Criminal Code, Count 3 on Information 12-07774;

7. Conspiracy with Afshin Dastani and others between May 25, 2010 and August 31, 2011 to unlawfully export a controlled substance, contrary to s. 6(1) of the Controlled Drugs and Substances Act and s. 465(1)(c) of the Criminal Code, Count 4 on Information 12-07774; and

8. Conspiracy with Afshin Dastani between May 25, 2010 and August 31, 2011 to deal with property, namely $169,000 in Canadian funds with intent to conceal, contrary to s. 462.31(1)(a) of the Criminal Code, Count 5 on Information 12-07774.

James Associates is charged with the following between May 26 and May 31, 2010:

9. Deal with $419,509 in Canadian funds with intent to conceal knowing that property to be obtained by crime, contrary to s. 462.31(1) of the Criminal Code, Count 5 on Information 12-04751; and

10. Possession of Property Obtained by Crime, namely $419,509, contrary to s. 354(1)(a) of the Criminal Code, Count 8 on Information 12-04751.

[2] Mr. James was originally charged with Rosemary Cremer on Counts 1 and 2. Both elected to be tried before me and pleaded not guilty to all charges. After I dismissed a Motion to stay the charges for delay brought under s. 11(b) of the Charter by Mr. James and Ms. Cremer, the Crown severed Ms. Cremer from the above two Informations and she did not appear for the evidence phase of this trial. Other accused, namely Eveline Holdings & Sterling Capital did not appear at this trial. I was told that neither company was served with initiating process.

Evidence

Agreed Facts

[3] Crown and Defence agreed that on May 25, 2010 a search warrant under the Mutual Legal Assistance Treaty ("MLAT") was executed at the home of Afshin Dastani. That search turned up a significant quantity of ephedrine, nearly $1 million dollars in cash, a bank draft of $354,420 payable to TICO solutions, over 60,000 Canada Post receipts with the names of addressees, and product descriptions, and other items of interest to the RCMP.

[4] A second search warrant was executed at the office of Mr. Nick DeLuca, an accountant. That search turned up a Statement of Services to Afshin Dastani in the amount of $35,736.25 from September 2010, and a Sterling Capital Corporation cheque payable to Nick DeLuca in the amount of $35,736.25.

[5] A third search warrant was executed at the law office of the accused Kenneth James on June 7, 2010. That search located $72,991 in cash.

[6] Another search warrant was executed on June 7, 2010 at the residence of Kenneth James. That search located $665,261 in cash.

Documentary Evidence

[7] Mr. James conceded admissibility of the Crown documents subject to relevance being established. In a ruling dated September 29, 2015, I found that relevance of those documents was established. Mr. James conceded the authenticity, origin and continuity of the Crown documents as well as the documents seized by the Lavalee hearing Referees.

[8] The Crown summarized some of these in electronic tables to show the source, destination and flow of funds. The Documents show at a minimum that companies controlled by Mr. Dastani were sending money to bank accounts controlled by Mr. James as early as December 31, 2008, when Nutrition Direct drew a US dollar bank draft in the amount of $50,000, which was deposited to the Kenneth James in trust for Eveline Holdings account ("Eveline IT") on 18 June 2010. Other deposits to the same account occurred as early as 29 July 2009, when Dastani's company NSO Inc. drew a bank draft in the amount of $49,950.00 payable to TICO Solutions. The evidence shows that the withdraw of funds from companies controlled and operated by Afshin Dastani for the principal purpose of exporting ephedrine and deposited to bank accounts controlled by Kenneth James was more or less continuous from July 2009 up to March of 2011. The dollar value of these transactions totals in the millions. Notably, on May 27, 2010, NSO Inc. made a cheque payable to Mr. James' law firm in the amount of $419,500. That cheque was deposited to Mr. James' personal account at the TD bank. It appears that this cheque left only $1612.13 in the account of NSO. Between March 14, 2011 and April 26, 2011, 2245933, Mr. Dastani's company Nutrition Services, paid four US Dollar Bank Drafts totalling $169,228.09 to Actively Managed Products, another of Dastani's companies. Each of those instruments was deposited into the Eveline IT bank account.

[9] Aside from financial transactions, the documentary evidence is of a significant volume and includes shipping documents, tax documents, photographs taken and documents by the RCMP under the MLAT warrant, seized business records. For purposes of this judgement, and because of their volume, it is not necessary to itemize all the documents introduced into evidence by the Crown.

Danielle Dambrosio

[10] Mr. Dambrosio was a web developer who developed web sites focussing on internet marketers. He met Afshin Dastani in 2006 or 2007 working out at the gym, and Dastani ultimately asked him to build a web site. As Dambrosio said, Dastani needed e-commerce sites for selling goods on-line. He built multiple such sites for him over the years. Some launched, some didn't. Mr. Dambrosio worked for Afshin Dastani for 7 – 10 years on and off.

[11] Nutrition Depot was one such site, which went live in 2007. Another, Empire Nutrition was built but never launched. Energy re: load, and hoodia depot.ca were others built to help Mr. Dastani sell supplements. Mr. Dambrosio described Dastani's business as an on-line supplement store, selling proteins, vitamins and sports supplements. Dambrosio created the web-sites and taught Mr. Dastani how to run them. The web sites occasionally needed either fixing or expansion to add functionality. This was part of Mr. Dambrosio's service for Mr. Dastani.

[12] The police executed a search warrant on Mr. Dambrosio's house and seized a computer. That computer had a volume of back-up of information from Mr. Dastani's web-sites which included customer and billing information. Mr. Dambrosio described Afshin Dastani as being resourceful and tech savvy. Sometimes Mr. Dastani proposed technological improvements for his web-sites to Mr. Dambrosio.

[13] Mr. Dambrosio described his relationship with Mr. Dastani as being personal. He knew that Mr. Dastani was in the business of selling nutrition supplements such as protein powders and whey, caffeine, cretin, and glutamine. Dambrosio said that he didn't care what was on Mr. Dastani's web sites and never asked him. He had no sense that there was anything illegal in what Mr. Dastani was selling on line.

[14] Mr. Dambrosio was candid about his working relationship with Mr. Dastani. Dastani wanted a lot of favours. Dambrosio wasn't charging a lot for his services. He described Mr. Dastani as a diligent business person who wanted the work done a certain way. I got the impression from his evidence that Mr. Dambrosio considered Mr. Dastani a demanding client.

Computer and Data Analysts

RCMP Witnesses

[15] Cst. Frank Dudas has been a RCMP officer since May 2007. He participated in the execution of the MLAT warrant at Afshin Dastani's residence at 30 Natalie Court in Vaughan. That search turned up evidence of Mr. Dastani's ephedrine exportation business, including repackaging materials, measuring instruments, labels, Canada Post receipts and approximately $950,000 in Canadian currency. The MLAT warrant was executed at the request of the Australian Government, who had either intercepted or seized ephedrine coming from Canada. Ephedrine is a precursor substance to Methamphetamine which is itself a highly addictive and pernicious street drug. He itemized the Canada post receipts on a spread sheet. There were a lot of receipts, and the process of itemizing took many people many days. The Canada post receipts went back as far as 2006, but ephedrine was only seen as early as 2007. It took about four months simply to itemize all the Canada Post receipts for purposes of developing spreadsheets to summarize them.

[16] Cst. Dudas also executed a search warrant on the Danielle D'Ambrosio residence in June 2011. A computer seized in the execution of that search warrant led to back up databases for Mr. Dastani's web sites. That information was compared to the postal receipts seized under the MLAT warrant.

[17] The electronic media seized by Cst. Dudas was examined by James McAdam, a civilian member of the RCMP. He transposed the data to an Excel spreadsheet, which was then given to Tracey Gualberto, a civilian working for Public Works Canada. Her field is forensic accounting. Ms. Gualberto provided a report for the Dastani investigation, which bore the moniker Project OLawn. She examined the database extracted by John McAdam and determined that Mr. Dastani was placing 90% of his ephedrine orders outside of Canada. The dollar value of that portion of his business amounted to $5,020,624 for the period of July 12, 2006 to June 8, 2009. She was asked whether she observed Canadian customers of Mr. Dastani to be paying in US Dollars, and her answer was yes, that did occur in 2009.

Delivery Persons

Timothy Hunt

[18] Mr. Hunt has known the accused Kenneth James for over 30 years. He did general maintenance on Mr. James' cottage and boats. About 3 or 4 years previously – in 2010 or 2011, Mr. Hunt was told by Mr. James that he had a client who was starting a business and had problems storing inventory. He needed a middle person to pick up packages and hold them until needed. That meant running the packages down to his store which was a "GNC" type store, the kind that sells body building products. Mr. James told him that it was all perfectly legal.

[19] Mr. Hunt did just that. Shipments would come to Parry Sound; he held them until they needed to come down to Toronto. Mr. Hunt did that only once. He brought the package to Mr. James' office with his wife and son. That was the one and only time he met Afshin Dastani. He had a brief discussion with Mr. Dastani while his son transferred 5 or 6 boxes to Mr. Dastani. He believed the boxes came from Nutrition House in Winnipeg. One of the boxes was damaged en route, and he opened it. He testified that the contents were identical to what could be bought at a GNC store, namely ephedrine. Mr. Dastani paid them $20 per box. Of the several shipments he only took part in one delivery, the rest were done by his wife and son. Mr. Hunt testified that, while he didn't care much for Mr. Dastani, there was nothing in the delivery process to suggest illegality.

Sherri Hunt

[20] Mr. Hunt's wife Sherri also testified to much the same thing. She added that the shipments would sometimes come to them at their home, and sometimes to a Native friendship center. That in turn required the involvement of her brother in law Marcel Baker who lived on the reserve. The shipments went on for one year, but not at a regular pace. When she met Mr. Dastani in the parking lot of Mr. James' office they would follow him to a storage facility. She found that experience unsettling and stopped helping.

Marcel Baker

[21] Mr. Baker met Kenneth James only once, at Mr. Hunt's house and nothing illegal was discussed. Mr. James said that he had a client with distribution problems. Mr. James asked him to receive some packages and re-ship them to Toronto. He didn't know what the product was, but he did know it wasn't illegal. Mr. Baker was presented with an Incorporation Document for 2247115 Ontario Inc. That registration listed Mr. Baker as a Director for the Corporation, with an address of Parry Island Reserve 16, Parry Sound Ontario. Mr. Baker didn't know the Corporation was set up, or that his name was on the Corporate registration. Mr. Baker said that the delivery arrangement from his perspective was to attend at the courier kiosk in either Parry Sound or Gravenhurst, sign for the packages and take them to his sister and brother in law's house. He was paid for his gas, and was to be paid an amount per box, but didn't receive that. He was told by Kenneth James to open a bank account for this, which he did. He never met Mr. Dastani, and he never went to Toronto as Mr. and Mrs. Hunt did.

Afshin Dastani

[22] Mr. Dastani started a business in 2006 selling weight loss products including ephedrine. Ephedrine is a weight loss product which is illegal to export from Canada. He was charged and convicted for doing just that and as a result received a jail sentence of 2 years less a day plus 2 years of probation. When Mr. Dastani testified before me he was out of custody.

[23] Mr. Dastani started his business through 1685207 Ontario Inc. (hereafter "207"). That company purchased ephedrine and other sports supplements from distributors in Canada, repackaged and resold them. 207 used the name Nutrition Direct. Nutrition Direct opened merchant accounts which permitted it to receive credit card payment from customers over the internet. One such merchant account was PSI Gate, which later became Chase Paymentech.

[24] The Nutrition Direct bank account which was tied to the PSI Gate account was 5262723. Nutrition Direct shipped its product using Canada Post. Its supplier was a company called The Winning Combination in Winnipeg.

[25] In December 2008 Mr. Dastani stopped using 207 as a corporation but carried on the ephedrine sales using a new company called NSO Incorporated. NSO's corporate number was 2194465 Ontario Inc. By the time NSO became active Mr. Dastani used Moneris for his merchant account because his dollar volume was too much for Chase Paymentech to accept. Moneris ultimately permitted US Dollar facilities so that NSO could receive payment in that form. NSO did its banking with Royal Bank of Canada (hereafter "RBC").

[26] 2245933 Ontario (hereafter "933") was another company operated by Mr. Dastani in the ephedrine business which was put into Mr. Dastani's mother's name.

[27] Production Orders served on all of these companies ultimately yielded a substantial paper trail of Mr. Dastani's ephedrine sales operations both in dollar terms and also destination terms.

[28] Mr. Dastani denied that his brother-in-law Hamid Reza Zeighami and his sister Afsoon Dastani had any involvement in his companies. Similarly, he denied that his parents Alireza Dastani and Nadieh Mansouri had any involvement in any of his companies in the course of marketing ephedrine, although he admitted that his father was added to one of his companies.

[29] Dastani looked for ways to reduce his tax liability, and sought advice from an accountant Nick DeLuca, who referred Mr. Dastani to Kenneth James who he knew to be a lawyer. He wasn't sure exactly when he met Mr. James, but put the period as early 2009. According to Mr. Dastani he needed legal work in the form of updating his company documents and he also wanted to speak to him about "looking into diverting funds so I would not pay taxes." Mr. Dastani waived solicitor/client privilege for his communications with Mr. James.

[30] Mr. Dastani said that he discussed ways of reducing his tax liability with Kenneth James. Dastani said that "I had the idea first." He had done on-line research into setting up offshore companies with merchant accounts, but concluded that he couldn't because his business had no physical presence outside of Canada. Mr. James then helped Mr. Dastani set up a company in the Turks and Caicos which led him to give Mr. James drafts who in turn would return the funds to Mr. Dastani.

[31] Dastani testified that Mr. James gave him the possibility of setting up a company offshore without having to set up a physical presence there. As Dastani put it in his testimony in-chief:

He would take the funds in trust and since he's a lawyer nobody would question that because he's like a trustee. And in return I would get invoices stating that the funds were given to the company in Turks and Caicos for management or whatever purpose we decided to create on the invoices.

[32] TICO Solutions (hereafter "TICO") was then created in the Turks and Caicos. Dastani told Mr. James that the business he was running was weight loss products and sports supplements. Critically, Dastani was asked if he specifically told Mr. James that those supplements included ephedrine. He could not recall if he did or not. Nor could he recall if he ever told Mr. James that he was making sales outside of Canada. He did confirm that he told Mr. James that he was predominantly dealing with US Dollars.

[33] As a Turks and Caicos Company TICO required another company, Logberg Solutions (hereafter "Logberg"), to manage its filings in the jurisdiction of the Turks and Caicos.

[34] The result of this was that NSO sent money to TICO via Kenneth James. According to Mr. Dastani, he would take NSO bank drafts and give them to Kenneth James. TICO had no bank account, and did nothing. Dastani's plan was to have TICO generate receipts to NSO in order to offset NSO's revenue against the false expenses coming from TICO, but no such invoices were ever generated. According to Mr. Dastani, this was his plan, and it was Mr. James who explained how to do it.

[35] Once the NSO bank drafts were given to Mr. James, Dastani admitted that he had no realistic control over the money. A 1% fee was to be charged to Mr. Dastani for each draft. When Dastani asked for the money back, it would be provided in cash. In his testimony, Mr. Dastani was showed several such cheques. One was dated July 23 2009 for $49,950.00, which on July 29, 2009 was deposited to "Eveline In Trust". Table 1 of the Crown electronic exhibit #131 shows several such cheques after that time up to 24 March 2010. Each one was deposited to Eveline In Trust. The cheques referenced in Table 1 range from $49,950 up to $267,300 US dollars. One of the bank drafts payable to TICO in the amount of $354,340.03 US was seized by the RCMP when they executed the MLAT warrant. When the police executed the MLAT warrant Dastani confirmed that he had a huge amount of cash in his house – nearly 1 million dollars in $10,000 bundles.

[36] Dastani made a voluntary disclosure to Canada Revenue Agency (hereafter "CRA") after the execution of the MLAT warrant. He had by then retained an accountant Nick DeLuca to assist in the tax filings. DeLuca was paid around $37,000 in a cheque from Mr. James.

[37] Mr. Dastani described the MLAT warrant as being a search warrant from Australia, which was because he had shipped ephedrine there. His shipments were seized by the Australian customs authorities who then asked the RCMP for assistance. Dastani said he panicked when the search warrant was executed. Within a week he saw Kenneth James because he had dealt with him extensively in the past. Dastani was worried about all the drafts he had given Mr. James, all the money which was seized at his house, and all the things the RCMP had seen at this house. Dastani described Mr. James reaction to learning this as being calm because, as Dastani described it in his testimony:

It was more like, you know, obviously, calm down, well, they didn't really come for the money, they came actually for a search warrant execute because of the Australian customs border. So there's – you haven't been charged yet and – yeah I mean. It wasn't – it – it seemed like there wasn't a big concern in the sense of because they came for, realistically, something else and we'll figure out something in regards to the money.

[38] Dastani said that the plan for the money was to get it back because the RCMP didn't come for that. Mr. James told him that because he is a lawyer it wasn't easy for the police to get a search warrant for his office. Dastani then took steps to protect his other assets. This meant telling Mr. James about a down payment his brother in law had made on his house. Dastani told Mr. James that the down payment was legitimate. Dastani also wrote a cheque on May 27, 2010 for $220,250 converted into US Dollars and made payable to Ken James in Trust. Bank records show that cheque was deposited into the same Eveline IT account on May 31, 2010.

[39] Table 3 of the Crown's electronic documentation links two specific payments Mr. Dastani made in days after the execution of the MLAT warrant. One was in the amount of $220,250 US which was deposited to In Trust Eveline Holdings account. The other was in the amount of $419,500 Canadian payable to James and Associates which was deposited to Mr. James' personal account at the TD bank. As Dastani described it that cheque was to "clean out the account so in case if the RCMP would've frozen my accounts…".

[40] Mr. Dastani testified that he discussed the Australian investigation with Mr. James. He said that he expressed his concern that the RCMP found ephedrine and "…all the money" and that the exportation of ephedrine was illegal. Dastani testified that Mr. James told him that the RCMP didn't come for Dastani's business at that time. The RCMP came to assist an Australian investigation regarding shipments of ephedrine to that country, not NSO or Dastani himself. In-chief he testified that Mr. James was aware that the MLAT warrant was about exportation of ephedrine.

[41] Mr. Dastani's business relationship with Kenneth James continued after the MLAT warrant was executed. According to Mr. Dastani they met at Mr. James' office and discussed the fact that, while he wasn't charged, Dastani's business was both illegal and lucrative. According to him they then set up new accounts for ordering and shipping ephedrine and a new company under his mother Nadieh Mansouri's name to open a new merchant account with Moneris so that on-line sales could continue. Ms. Mansouri had her own Canada Post account to receive funds. As Dastani put it in his testimony:

Ken James helped to set up the companies, the corporations. He helped to find the two individuals to set up the – the companies to purchase the ephedrine from …Nutrition Club in – and also opening the account for Canada Post so we can use their services to export ephedrine, to ship ephedrine.

[42] The MLAT warrant changed the way Mr. Dastani did business. Dastani testified that Ken James suggested multiple accounts which would make it more difficult to trace the transactions. Whereas TICO was originally the offshore company used to provide false expenses, after May 2010 a new company was set up for that purpose, Actively Managed Products (hereafter "AMP"). AMP didn't perform any service or provide any products. Its sole purpose was to be the recipient of funds that Mr. Dastani had sent. As Dastani testified, "It was for me to move the money, so tax purposes." Documents filed include 4 bank drafts written on 933's RBC account payable to AMP in the amounts of: $37,141.09; $34,599.56; $47,059.88; and $50,427.56. Each bank draft was given to Ken James and deposited to I/T Eveline account. Money was returned to Mr. Dastani by Mr. James in the form of cash. Dastani testified that the process for getting money back after the MLAT warrant was the same as before, "Whenever I needed money I would go see him, I would let him know, and I would get cash." The cash was in amounts of 10, 20 or 30 thousand dollars. That happened 3 or 4 times after May 2010. Dastani couldn't be sure, but he assumed that TICO invoices were generated to cover the deposits.

[43] The new company was called Nutrition Services, or 2245933 Ontario Inc. It made the ephedrine sales and received the revenue. Dastani obtained new banking accounts and the Moneris Account. The Moneris Application form was signed by Ms. Mansouri on August 6, 2010. Transactions on September 7 and 10, 2010 resulted in Moneris being provided a $61,000 security deposit in the form of a GIC.

[44] Effectively, Mr. Dastani's ephedrine exportation scheme carried on under the guise of a new company using new bank accounts. In his testimony in-chief Dastani said he made it clear to Mr. James that what he was doing was exporting ephedrine. Mr. Dastani's new ephedrine supplier was Nutrition Club, which was an Ontario based distributor which worked with the Winning Combination. According to Mr. Dastani, The Winning Combination was contacted by the RCMP. This resulted in the Winning Combination not wanting to do business with Mr. Dastani. Orders from Nutrition Club started in August of 2010, only a few months after the RCMP executed the MLAT on Mr. Dastani's residence.

[45] Dastani testified that he would email the order to Nutrition Club and Mr. James would send a wire transfer for payment. The product was received at one of the Companies Mr. James had set up in Ontario. Dastani knew that the product was received in the Port Perry area on an Indian Reserve. His evidence confirmed that of Timothy and Sherri Hunt as well as Marcel Baker that two friends of Kenneth James brought the product down to Toronto in a truck.

[46] The proceeds of sales then came into Mr. Dastani's mother's accounts and he then continued to give Mr. James bank drafts. Dastani said that he told Mr. James that he had a slight concern about his family to which Mr. James told him that the authorities were looking at him, not his family, and that it is an Australian investigation so not to worry. Mr. Dastani's mother agreed to have the new company listed under her name.

[47] Mr. Dastani testified that a second search warrant was executed on Mr. James. Mr. Dastani got in touch with Mr. James through Mr. DeLuca, and that apparently lead to a face to face meeting with Mr. James at the Vaughan Mills shopping mall in the GTA about 2 weeks after the search warrant. Dastani testified that at the meeting Mr. James produced a yellow piece of paper which said that the police questioned him about the money, knew everything, and took the documents. This caused Dastani to be nervous about what was going to happen to his money. James told Dastani that he would have to plead guilty, but that once he got out of jail he would still have his money, which by then was between 70 and 100 thousand dollars. Dastani thought that it was closer to 1 million dollars.

[48] Dastani pleaded guilty to several charges including fraud in relation to tax evasion. He received a sentence of two years less a day and two years probation. He put the amount of money that had come in for his scheme at $8 million in total. The Agreed Statement of Fact from his guilty plea was filed at this trial, and Mr. Dastani admitted to being aware of the facts in it.

[49] Mr. Dastani was cross-examined for 4 days over a range of topics, many of which were not covered in his testimony in-chief.

[50] One of the areas he was asked about in cross-examination was his family and friends. Mr. Dastani described his brother in law Hamid Zeighami as a man of honesty and great integrity. Mr. Zeighami had no involvement in the ephedrine business.

[51] Mr. Zeighami ended up being the partial contributor of funds to Mr. Dastani's new retail sports supplements venture Bull Dog Nutrition which started operation in 2010. Mr. Dastani said that more than half of his start-up money for the operation came from his on-line ephedrine sales.

[52] At various points Mr. Dastani said that no-one in his family knew what he was doing. His wife may have helped him, but he said that his family had "no clue, in the sense of what I was doing and…how illegal it was, and…the money and everything." That said, he admitted that his father "…wasn't really involved; his name was put on one of the companies but removed quickly or right away." The company Nutrition Services was opened under his mother's name, but apart from signing documents she had no day to day part in the operation of the scheme. He said she had "no clue about the day to day operation, but merely Money came in to the bank account and I had her, like, get a cheque for me with – converted into drafts and then I gave it to Mr. James….". In Mr. Dastani's evidence, he intentionally did not disclose his business dealings to people.

[53] One of Mr. Dastani's closest friends was David Reale. Dastani admitted that he didn't tell Mr. Reale anything about the nature of his business. This has some significance given that Mr. Reale was himself in the business of digital media advertising.

[54] Cross-examination revealed that Dastani's business model had him using "affiliates", which he described as being other web sites operated by third parties who would link to his using banners in the web site. Viewers clicking on Mr. Dastani's banner on the affiliate's web site would be directed to one of Mr. Dastani's web sites. Dastani paid over one hundred thousand dollars to those affiliates for the referral. That money was paid through a Texas based law firm Arrow and Associates which itself would distribute the money to the affiliates. All the associates were paid through the one law firm.

[55] It was also revealed in cross-examination that Mr. Dastani ran his web sites marketing product as a decongestant knowing full well that it is being sold as a weight loss supplement. He admitted to that misrepresentation.

[56] Mr. Dastani was a sophisticated business man. He was quite knowledgeable about the contours of his business, from how his web sites worked to how to extract timely deliveries from his suppliers. Not surprisingly, he was assertive in his tone with his suppliers. When he wanted modifications done to his web site, no matter how seemingly minor, he was assertive with Mr. Dambrosio that the modifications be completed immediately.

[57] Mr. Dastani followed up the knowledge of his business and assertiveness with being a very tough negotiator. While his business was making illicit profits in the millions he was at the same time arguing that his web-designer Dan Dambrosio knock his $750.00 account down to $400.00. Dastani admitted that "Like…I nickeled and dimed for a hundred dollars."

[58] Cross-examination revealed that Mr. Dastani used false names when emailing with people. Those monikers included Sheen, or Brian Johnson, Sean, Mike Palmer when he was shipping product around the globe.

[59] Even within the illicit ephedrine exportation scheme he rebottled the 8 mg tablets he sold to appear as 10 mg tablets so as to cheat his customers. Other product was sold as being made in Germany, when it wasn't. When Mr. Dastani was confronted with this mislabelling by a customer he continued the lie, claiming that he was a legitimate business which didn't scam customers. Dastani admitted that he was in fact scamming people. Dastani admitted that he lied about both of those facts to his customers.

[60] Dastani counselled his customers on how to avoid the scrutiny of New Zealand and Australian Customs authorities. He did this by changing the labels from ephedrine to caffeine. He admitted that part of his scam was to tell his customers that his company "would not do anything illegal." Dastani explained that he never turned his mind to the fact that he was scamming people because of arrogance and greed.

[61] Despite the fact that Mr. Dastani's on line ephedrine sales were raking in millions of dollars he still insisted on pirating inexpensive Microsoft software using his friend Khaldoun Ayoub's access key. At that time in February of 2009 Dastani had, in his estimation, "probably millions" of dollars in the bank, but was still motivated to steal free software to save a couple of hundred dollars.

[62] Dastani admitted that Mr. James was not involved in the entirety of the day to day operation of his ephedrine scheme. He was not involved for instance in any of the interaction between Dastani and the ordering of product from the Winning Combination; nor was Mr. James involved in the incorporation of N.S.O. which was Dastani's company receiving ephedrine. Dastani had no recollection of ever speaking with Mr. James on his personal cell phone. All communication appears to have been via his office phone.

[63] Dastani himself incorporated N.S.O. early in 2009 as a method of getting a new start, to do things in a more lawful way. He testified that his interest in changing to a legitimate business model didn't last long. He agreed that NSO did the same illegal exportation scheme as before and that "…I could have realistically stopped it, but because of the greed and everything I kept going, yes."

[64] It was revealed in cross-examination that Dastani approached a woman named Jessica Arroyo with a view to paying no taxes on his illicit profits. He understood that Ms. Arroyo worked for offshore internet companies. He agreed with the suggestion that he wanted to cheat the Canadian government out of taxes that may have been due on his ephedrine profits. That email conversation with Ms. Arroyo is significant. In it he canvasses various options to move his money off-shore, including having a merchant account offshore and using an off-shore company as a marketing entity to move the funds. In his email conversation with Ms. Arroyo, Dastani says "I was thinking of also creating invoices from that company to my company(sic)." He goes on to say "i will definitely claim everything, since we do a lot of business, we just claim that we paid that company for marketing and advertising online for us." At that point Ms. Arroyo is suggesting moving the money to Panama or Costa Rica. Ultimately Ms. Arroyo gives Mr. Dastani a referral to a Costa Rican lawyer Juan Carlos. Notably, Ms. Arroyo also gives Mr. Dastani the name Tico Solutions. As she writes to Mr. Carlos on July 17, 2008 (ccing Mr. Dastani) "I was thinking that maybe Tico solutions (which already have the invoice structure in Costa Rica) can provide the invoice but no sure how much is the Costa Rica taxes, the idea is break even."

[65] Evidence of fake invoices from TICO was found on Mr. James' computer and Mr. Dastani was adamant that he never provided them to him. Those invoices were admitted by Mr. Dastani to be part of his Voluntary Disclosure filing to CRA. The Voluntary Disclosure to CRA was made by another lawyer Mr. Russell Laishley, and Dastani admitted that Mr. James had no part in that. Dastani later said in re-examination that Ken James first brought up the idea of using false invoices generated from an off-shore company.

[66] Mr. Dastani admitted that the filings by his tax lawyer Mr. Laishley were replete with lies. He admitted to lying to Mr. Laishley and his accountant Mr. Deluca in his instructions about the factual basis for the Voluntary Disclosure.

[67] In his pursuit of updating his tax filings Dastani sought help from David Reale. Reale in turn referred him to the accountant Nick DeLuca. On September 15, 2008, Dastani met with Mr. Deluca for that purpose. At that point Mr. Dastani still hadn't shared with Mr. Reale the fact that he was making significant profits from the illegal exportation of ephedrine. While Dastani couldn't remember if he ever told Mr. Deluca that he needed help hiding money, he did admit that it made little sense to tell the truth to Mr. Deluca about the scheme knowing that Deluca might divulge this to their mutual friend David Reale, who was still in the dark.

[68] Part of Dastani's reason to go to Mr. Deluca was to set up the new off-shore entity. This in turn required a business plan. Dastani turned to David Reale for the business plan. Reale had experience drafting business plans and Dastani did not. Significantly the business plan was for movement of funds to an offshore entity. Dastani told Reale that the new company was for sports supplements but didn't tell him that its core business was illicit, namely exportation of ephedrine. Nor did Dastani let Mr. Reale in on the volume of the business he was doing.

[69] DeLuca told Dastani that he needed a lawyer involved for two purposes: incorporation documents; and also a Voluntary Disclosure to CRA given that Dastani had not filed his tax returns in years. The tax lawyer retained by Dastani for the Voluntary Disclosure, Russell Laishley impressed on him the importance of being honest and forthright with his tax situation. Dastani assured Laishley and the CRA that he was being candid. But that was not true.

[70] The corporate lawyer that Deluca sent Dastani to was Mr. James. Dastani said that when he met Mr. James at the first there was no real discussion about his business. He simply dropped off the minute book. That minute book was for NSO, which Dastani had incorporated all on his own. Mr. Dastani had his father listed as a shareholder and director as of January 2, 2009. Dastani explained the reason for that being that he was about to be married, and the predecessor to NSO namely 16885207 Ontario Inc. had a stockpile of cash. In his words:

The reason why he was added to N.S.O. Incorporated at all is because I got married, and I wanted to get a pre-nup done, and there was a lot of money coming to the company, and I didn't want to, God forbid something happens and I got a prenup, right, I'm getting a pre-nup, I didn't want to have to give my ex-wife that – if I – have divorce with wife half of the company.

[71] Dastani did not agree that he was giving bank drafts to Mr. James in order to hide money from his wife. That said, he did readily agree that he was hiding assets from his future wife in the event of divorce. It was Mr. Dastani's idea, not Mr. James', to list Ali Reza Dastani as the shareholder, and backdate that corporate filing to early 2009.

[72] Mr. James asked for references for Mr. Dastani and Dastani provided them. These included a letter from another lawyer who said that "Afshin Dastani is an honourable and truthful individual," and a banker from TD Canada Trust who described Dastani as a "valued client."

[73] In February 2009 Dastani was informed in writing by Health Canada that his companies were selling Class A precursor substances under the CDSA without a licence. Those letters were abundantly clear that he had to either cease doing this or get a licence. If he did neither of those things the matter would be referred to the RCMP. Dastani wrote back his companies only carry on retail activities and so were CDSA compliant. The language of this letter was given to him by his supplier Mr. Bukhari. That series of correspondence was never shown to Mr. James. Dastani did not share this exchange with Mr. James, and admitted that Mr. James had no knowledge of the Health Canada letters.

[74] In order to set up TICO Solutions in the Turks and Caicos, Mr. James had to have Mr. Dastani sign a number of undertakings, including assertions that he was not using the Turks and Caicos company for criminal or illegal purpose, and that all funds provided to the account were bona fide legal in origin and unconnected to money laundering or criminal activity. The questionnaire included a statement that the purpose of TICO was importation and distribution of nutritional supplements but there is no mention of exportation. These undertakings were part of the file which Mr. James sent to the Turks and Caicos to set up TICO Solutions in that jurisdiction. Those statements were under oath.

[75] Dastani testified that his father was listed as a shareholder and director of NSO, but that wasn't accurate. He had instructed Mr. James to list Dastani's father only so that he could have a pre-nuptial agreement done and then have his father removed. That said, Dastani also claimed in evidence that his father had nothing to do with the business. Dastani's viva voce evidence is at cross purposes with the Agreed Statement of Facts filed at his guilty plea which stipulated that Ali Reza Dastani was directly involved in the repackaging and shipping of ephedrine and appears to have drawn a wage.

[76] In the facts supporting his guilty plea Mr. Dastani admitted that his father helped him set up NSO but in testimony before me he testified that was false.

[77] Dastani testified in cross-examination that he didn't tell his then fiancée Deborah Stanton about the true nature of his business, even though he also admitted that she was involved in the day to day operation of the scheme. She was involved in the management of shipping ephedrine abroad.

[78] In cross-examination it was also revealed that Dastani was paying his family members substantial monies from his scheme. In 2007 Nadieh Mansouri received a cheque for $24,000 from 207. In 2008 she received 4 more totalling $30,000. This continued into 2009 and into 2010 with several other cheques from NSO to Ms. Mansouri. Therefore, in December 2007, long before Mr. James had met Mr. Dastani, Dastani was giving his mother $24,000 in one lump sum for no apparent purpose. On June 24, 2008 Mr. Dastani's company 207 wrote a $12,000 cheque to his mother with the endorsement "Memo: Commission."

[79] If Mr. Dastani's position in his evidence in chief was that he told Mr. James about his ephedrine exportation scheme then cross-examination altered that position. The following exchange is significant:

Q. So, its only Mr. James. Your whole life, all of this going on, there's one person you speak to about what you're really doing, right?

A. What – what you – what you're really doing is – I mean, I'm a little bit confused. What do you mean 'what you're really doing'?

Q. Well, your evidence, sir, is that you're very explicit with Mr. James about the nature of your business.

A. I – I did tell him what I'm – what I'm doing, weight loss products, supplements, you know, and all that, but…

Q. Not ephedrine.

A. Probably not ephedrine based products, ephedrine – but, that – I didn't go into details specifically.

Q. You wouldn't' have said ephedrine at all to Mr. James. There'd be no need to.

A. I'm not 100 percent sure, like I said the first – like, I'm not 100 percent if I said it or not.

Q. I'm going to suggest to you there'd be no reason to. Just like you hadn't told anybody else in your life, there'd be no reason to say that you're exporting ephedrine.

A. Exporting? No. But, selling ephedrine is. I mean, I didn't say anything about exporting and specifics.

Q. I'm going to suggest you don't say anything about ephedrine, period, to Mr. James. There'd be no need to. He's not – he's not there for your business operations, right?

A. Yeah, He would have – he didn't – wouldn't probably care.

Continuing later:

Q. Okay – okay. And so, the suggestion then is Ken James is not different from anyone else in terms of what you're saying to them about the nature of your business.

A. True

Q. And we know you've lied to everybody else, right?

A. I hadn't disclosed to many – or anybody in details what I was doing. Correct.

[80] Later in cross-examination Mr. Bergman came back to the same point:

Q. Well, you used him to launder your money, right?

A. I used him but he didn't have to do it.

Q. Well, here's the problem Mr. Dastani. You're not disclosing a whole bunch of things to Mr. James. He doesn't know the nature of your business, right?

A. Not in details, no.

Q. And he doesn't know that your money's coming from the sale and exportation of ephedrine, right?

A. I had not specifically told him…

Q. So…

A. …exportation

Q. …he doesn't know that that money your giving him is illegal, that its proceeds of crime. You know that, right?

A. I knew that. Correct. It's very possible that he didn't ask questions, he – he wasn't told in that – in detail so he didn't…

[81] Mr. Dastani also said that he didn't tell Mr. James about the RCMP showing up on January 14, 2010 at the house of Ali Reza Dastani to question him. At that time Mr. Dastani's father was the registered director of NSO. It appears that the RCMP were investigating ephedrine sales.

[82] At other points Mr. Dastani was steadfast that he did tell Mr. James about the nature of the business after the RCMP had executed the MLAT warrant. That evidence was captured in an exchange:

Q. The only person who says Ken James had knowledge is you, right?

A. That's correct.

Q. And you agree that you've lied and manipulated lawyers, right?

A. That's correct.

Q. Accountants.

A. That's correct.

Q. Your wife.

A. That's correct.

Q. Good friends.

A. That's correct.

Q. Your parents.

A. That's correct.

Q. But, one person, Mr. James, you give him and you share that knowledge only with one person, Mr. James.

A. Yes, I did.

[83] Dastani testified that after the May 2010 MLAT warrant being executed he was opening a retail store. Mr. James was involved in that insofar as he incorporated that company Bulldog Nutrition. Dastani admitted that his change of suppliers after the MLAT raid was inspired by his previous distributor Mr. Bukhari, and that Mr. James had no knowledge of the supplier Nutrition Club. At that point, according to Dastani's evidence, he did talk to Mr. James about his legal problems with the RCMP. His evidence on this point was:

Q. Right. So if your evidence then – what you're saying to Mr. James is the heat is on me. Everybody's looking at me, right?

A. Right.

Q. Is that now your evidence that you say that to Mr. James?

A. Well, I just – yeah. I mean it was the whole stuff happening and I'm – the – the – the search warrant and everything. That's what I was under my impression that I'm being looked at.

Q. So you weren't baffled when Mr. James would say to you don't worry, its not a big deal. They're only look at an Australian situation. It has nothing to do with you anyways. Why would he say that to you, sir?

A. I don't know.

Q. Did you say to him well, no, no, it's more than Australia? It's the same question Mr. Gold asked you actually. Didn't you say to him you don't understand, Mr. James? This is more than Australia. They're looking at me?

A. Well, they took the money, Ephedrine. I mean they're definitely looking at me. And to what extent I went and said what's completely here with Mr. Ken James and that to my knowledge I did mention it to him but maybe I didn't hundred percent tell him everything in the sense like it's, you know, the whole Ephedrine to the US I kind of like it's – I mean he knew I was shipping it but to what extent he was knowing legally to what extent that would have been illegal because the Ephedrine was purchased legal in Canada.

[84] Dastani admitted that, for purposes of shipping the ephedrine in the post-MLAT period, contact with Canada Post was between Dastani and the Canada Post contact Barbara Zebrowski. Dastani would instruct Mr. James to transfer money to Canada Post as money was due. Dastani admitted that Mr. James would not know from those instructions where Canada Post was shipping to.

[85] Similarly, Dastani used Mr. James' law office to pay invoices for suppliers. Again, no specifics were provided. When asked by Mr. James' staff about the nature of his business, he merely told them that he sold nutrition supplements, and weight loss products, without mentioning exporting ephedrine overseas "or anything like that…."

[86] This is from his evidence in-chief quoted above. As Dastani put it in his testimony:

Ken James helped to set up the companies, the corporations. He helped to find the two individuals to set up the – the companies to purchase the ephedrine from …Nutrition Club in – and also opening the account for Canada Post so we can use their services to export ephedrine, to ship ephedrine.

[87] In cross-examination he admitted that Kenneth James had nothing to do with this. He got the idea to set up the companies from Ms. Arroyo and Kenneth James just paid the Canada Post invoices. The above passage suggests that he knew the destination that Canada Post was shipping to.

Principles

[88] I do not understand the Crown and Defence to disagree about the guiding legal principles. Accordingly I charge myself of the following.

Money Laundering

[89] Under s. 462.21(1) of the Criminal Code money laundering is defined broadly and includes such varied acts as use, transfer, send, deliver, transport, alter and dispose of property knowing that the property was obtained by crime with the intent to conceal or convert that property. There are two elements to the mens rea, namely i) an intention to conceal or convert property or proceeds of crime; and ii) knowledge or belief that the property or proceeds were derived from a designated offence, see R. v. Daoust 2004 SCC 6, 180 C.C.C.(3d) 449 (S.C.C.) at para. 56. Conceal means to hide, and convert has a broader meaning, namely to change or transform, see R. v. Tejani (1999), 138 C.C.C. (3d) 366 (Ont. C.A.).

[90] It is a constituent element of the offence of money laundering that the property in question be derived from a designated offence which is defined in s. 462.3. Ephedrine is a Schedule VI substance under the Controlled Drugs and Substances Act. Exporting ephedrine is therefore a violation of s. 6(1) of the CDSA. On the other hand, mere possession or trafficking of ephedrine is not a violation of the CDSA.

Fraud

[91] The external circumstances, or actus reus of fraud under s. 380(1) are i) a prohibited act, be it deceit, falsehood or some other fraudulent means; and a deprivation from that prohibited act, which may be an actual loss or risk of deprivation which places the victim's pecuniary interests at risk, see Theroux v. R. (1993), 79 C.C.C. (3d) 449 (S.C.C.). In Theroux at p. 460, the Court held that the mens rea of fraud also has two elements, namely i) a subjective knowledge of the prohibited act; and ii) subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim's pecuniary interests are put at risk).

Past Discreditable Conduct

[92] Non-accused witnesses may be cross-examined on evidence which tends to show bad character. This includes prior convictions; bias; corruption; discreditable acts; general reputation for lack of veracity; and general evidence of bad character (see Watt's Manual of Criminal Evidence 2014 ed. par. 33.01). Antecedents, associations and mode of life are factors from which the credibility of a witness may be assessed, see R. v. Bradbury (1973), 14 C.C.C. (2d) 139 (Ont. C.A.) as quoted in Watt's Manual supra. It is axiomatic that I can believe some, all, or none of the evidence of a particular witness.

Principles Applied

[93] While exporting, importing, and possession for the purpose of exporting a Schedule VI substance such as ephedrine is an Indictable Offence under the CDSA, trafficking or other forms of possession are not. This is the legal context which situates much of the evidence in this trial. It is insufficient in most of the Counts for the Crown to show that the Accused was aware of Mr. Dastani selling or possessing ephedrine. The Crown must prove beyond a reasonable doubt that the Accused knew that Mr. Dastani was exporting ephedrine. In this sense the case before me stands in contrast to those CDSA prosecutions where the substance in question is illegal for any purpose.

[94] Mr. Dastani is a pivotal witness in the case against Mr. James. In oral argument Mr. Wilson, with his usual candour, said that if I were to reject the evidence of Mr. Dastani then the corroborative evidence alone would be insufficient to lead to a conviction on all Counts.

[95] Mr. Dastani's evidence has certain frailties, which include the following:

i. According to Mr. Dastani, he obtained the start-up funds for his new retail venture Bull Dog Nutrition from two sources: his brother Hamid Zeighami; and also from his on-line ephedrine sales. The seed money was therefore a mixture of both illegal funds from Mr. Dastani and legal funds from Mr. Zeighami. Mr. Dastani testified that he never told Mr. Zeighami about the illegal nature of his on line sales which means that he took his brother-in-law's money to mix with illegal funds for purposes of a new business venture without telling him of that fact. This is an act of deceit on the part of Mr. Dastani against a trusted, respected family member money putting Mr. Zeighami funds at risk were the government to choose to seize the illegal funds in Bull Dog Nutrition.

ii. Mr. Dastani gave Mr. Zeighami two cheques in 2008, one for $37,000.00 and another for $109,106.49. Both were drawn from his company 207. Mr. Dastani was questioned about the reason for those payments, and agreed that there was no reason for him to pay the first cheque since Zeighami did no work for him and lent him no money. He then gave another which suggested that Zeighami did loan him money but he wasn't sure. He said that the larger of the two cheques was Dastani paying Zeighami for a loan Zeighami gave to Dastani's parents, which he admitted was using proceeds of crime to pay off a debt of his parents. I am troubled by Mr. Dastani's payment of $37,000 to his brother-in-law for unknown reasons. The payment is sufficiently large that I would expect him to know the reason for it. I am left with the strong impression that Mr. Dastani paid this money to his brother-in-law to hide proceeds of crime and is lying in his testimony about that fact.

iii. Mr. Dastani went some distance at various points in his evidence to say that his family had no understanding of the illegal scope of his on line nutritional supplement sales. On the other hand he said that his wife helped him with shipping and receiving, that his father was a director, shareholder of the company, and that his mother received large value cheques for no apparent reason. This is a significant internal inconsistency in his evidence. The independent evidence of involvement in the scheme by Ms. Stanton, Ms. Mansouri, and Ali Reza Dastani is significant. Ms. Stanton helped shipped the product abroad, Ms. Mansouri was a conduit of illegal funds, and Mr. Dastani was a director and shareholder of a company whose prime object was an indictable offence and yet Mr. Dastani would have me believe that none of them "had a clue" about any of it. If Mr. Dastani were indeed giving truthful evidence, then he preyed upon his closest family members as pure dupes, which bears poorly on his credibility. I find however that he is not telling me the truth in order to protect his loved ones from scrutiny, which also bears poorly on his credibility. In that regard I take into consideration the fact that Ms. Stanton, and Ali-Reza Dastani were both arrested with Afshin Dastani on May 19, 2011.

iv. Mr. Dastani testified that he put the shares of NSO into his father's name to hide assets from his (now) wife Deborah Stanton. On the other hand he denied that he created NSO to hide assets from her. This is an internal inconsistency in his evidence. While Mr. Dastani may not have created NSO for hiding matrimonial assets, that is surely how he used it. Importantly, the idea of using Ali–Reza Dastani as the shareholder of NSO and backdate that to early 2009, was Afshin Dastani's idea. Mr. James may have filed the appropriate documents with the Ministry, but it was not his idea.

v. Mr. Dastani testified that his father never helped him set up NSO, but that was contradicted by his Agreed Facts from his guilty plea. The Agreed Facts are very lengthy which suggests that Mr. Dastani could be forgiven for a mistake in that document, but Mr. Dastani's use of others to further his scheme is a central issue in this trial. I therefore find that this is more than a minimal internal inconsistency in his evidence.

vi. Mr. Dastani testified that he lied to his friend David Reale about the nature of his business. Mr. Reale was himself in the business of digital media advertising, and so in a similar line of work, and yet Dastani obtained help and advice from this close friend over a period of years without telling him what he was really doing on line. Mr. Reale helped Dastani with a business plan, which it turned out was for a company to be used to move funds off shore. Dastani told Mr. Reale only that the company was not for sports supplements, not illegal acts. Dastani used his close friend Mr. Reale as another dupe in his scheme. This is an act of discreditable conduct.

vii. Mr. Dastani used a US law firm to pay his on-line affiliates, namely those other web sites who were paid to direct on-line traffic to one of Dastani's sites. There is no evidence that the US law firm knew or ought to have known that it was funnelling illicit funds. I find that part of Mr. Dastani's business model involved the use of a US law firm in the role of a dupe. This is an act of discreditable conduct.

viii. Mr. Dastani ran his web-sites marketing product as decongestant knowing full well that the ephedrine was sold as a weight loss supplement. He agreed that this was a misrepresentation. He also sold ephedrine to customers based on out and out misrepresentations as to quantity and manufacturer and then lied to his customers when they called him on it. This was a public falsity which I would describe as an act of discreditable conduct.

ix. Mr. Dastani admitted that throughout his business life as an exporter of ephedrine he was both assertive with his suppliers and a tough negotiator. While he was making illicit profits in the millions he was also arguing with Mr. Dambrosio to reduce a $750 bill to $400.00. Elsewhere he tried to steal software of minimal value. The evidence is overwhelming that Mr. Dastani was a shrewd, aggressive and sophisticated business man, and I find that his business was for the most part a criminal enterprise. At times, his dealings with suppliers paints him as something of a bully. His many lies and schemes must be assessed in this light.

x. Mr. Dastani admitted that his voluntary disclosure to CRA was replete with lies. He admitted to lying to his lawyer Mr. Laishley and his accountant Mr. DeLuca. Dastani knew at the time that the basis of a voluntary disclosure to CRA was candour and the evidence is clear that this was merely another opportunity to lie to his advisors and the Canadian Government in order to further his own self-interest. It is axiomatic that tax payers must be truthful in their tax filings and even more so if the tax filing is within the Voluntary Disclosure program. Dastani knew this full well. This is a serious act of discreditable conduct. I further find that Mr. Dastani lied to his lawyer Russell Laishley for the purpose of hiding assets, namely taxable income, from a creditor, namely Canada Revenue Agency. Given the issues at play in this trial this has added weight in my credibility assessment of Mr. Dastani.

xi. When Mr. James asked for references from Mr. Dastani, he provided them. Both of them were quite positive but appear to be premised on a completely false understanding of who Mr. Dastani was and what he was doing to make a living. This is an act of deception by Mr. Dastani.

xii. In February of 2009, Mr. Dastani was informed by Health Canada that the regulatory arm of the Canadian government was on to his ephedrine exportation scheme. He replied with letters which I find to be brazen falsities designed to avoid Health Canada and RCMP scrutiny over his criminal enterprise. Mr. James was not advised of this exchange and Dastani admitted that Mr. James had no knowledge of it. This is a very serious act of deception by Mr. Dastani.

xiii. In order to set up TICO in the Turks and Caicos, Mr. Dastani made certain undertakings under oath about the bona fides of himself and his business. These undertakings contained serious false statements. Not only were they lies under oath, but the only evidence I have is that they were also lies to Mr. James. These are serious acts of discreditable conduct by Mr. Dastani.

xiv. Mr. Dastani was directly confronted with the suggestion that he was not forthcoming with Mr. James about the true nature of his illicit enterprise. While his evidence in-chief was that after the May 27, 2010 MLAT warrant execution he told Mr. James about it, in the acid test of cross-examination he was not nearly so confident. The passages quoted above are examples of Dastani wavering in his evidence before me about what exactly he told Mr. James. To be sure, he takes both positions in his evidence, namely that he told Mr. James that he was exporting ephedrine and that maybe he didn't fully tell him the nature of the business. There is a palpable internal inconsistency to his evidence on this pivotal point which significantly reduces his reliability. The Crown argues that if Mr. Dastani waivered in his testimony on what he told Mr. James about the nature of his business it was only with regard to his pre-MLAT situation and not the post May 25, 2010 situation, but I find otherwise. I find that Mr. Dastani's evidence about what he told Mr. James regarding the export nature of his ephedrine business is wholly unreliable. I am bolstered in my finding by the fact that Dastani openly admitted to lying to his accountant, tax lawyer, friends, family, and government authorities about this very point.

xv. In his evidence in-chief Mr. Dastani said that Mr. James helped set up the companies, and was instrumental in the shipping of ephedrine in the post-MLAT period by his contact with Canada Post. Initially this suggested that Mr. James would have known about ephedrine being exported because he was part of the shipping process. In cross-examination it came out that Dastani had already formed the off-shore company idea and even the name of the company TICO from before he met Mr. James. The genesis of the idea was independent of Mr. James. Similarly, Dastani admitted in cross-examination that Mr. James only paid the invoices from Canada Post, and was not a shipper as, for example, Ms. Stanton had been. There is no evidence Mr. James was, for example, making labels or placing parcels in the mail box. These are two internal inconsistencies about significant points in dispute at this trial.

xvi. Mr. Dastani has a criminal record. In the context of his evidence it has a muted effect on his credibility insofar as he admitted to those acts which resulted in him being convicted of exporting ephedrine, possession of several million dollars of proceeds of crime, and Fraud on the Canadian Government. Furthermore, the offences he plead guilty to are offences which are also intimately tied to the allegations against Mr. James. That said, I take into consideration that he is a convicted drug exporter and fraudster.

[96] I accept Mr. Dastani's testimony to the extent that he himself designed and operated a scheme which started with unlawful exportation of ephedrine and developed to include money laundering and tax evasion. There is a plethora of evidence which confirms just that. Beyond that, I completely reject Mr. Dastani as a credible witness. His evidence has too many internal inconsistencies, and his history of significant lies to so many people renders him unworthy of belief. When the truth is expected of Mr. Dastani, be it with family, friends, legal advisors, government authorities, or customers that is the time when he chooses to lie. At times in his evidence I believe he was minimizing his family's role in his scheme and thereby lying to this Court.

[97] I also find that his testimony about a conversation he had with Mr. James at a local mall is unconfirmed from an independent source. While there need not be, given the other frailties in Mr. Dastani's evidence I have concerns about the reliability of Dastani's recollection of that conversation.

[98] There is an evidential gap insofar as the false TICO invoices which were found on Mr. James' computer were never linked to any tax filings. While there need not be, the failure of the Crown to lead evidence that Mr. James was the source of false invoices used by Mr. Dastani to reduce his tax liability reduces the strength of any inference that can be drawn from the seizure of false invoices on Mr. James' computer.

[99] Aside from Mr. Dastani's evidence, the documentary evidence lead at this trial shows that Mr. James ran the Eveline IT account with very high balances involving dozens of transactions over the period from January 18, 2007 when the records commence until December 2, 2011 when the records end. I find that the Eveline IT account was therefore created before Mr. James met Mr. Dastani. Indeed, on January 18, 2007 the account already had over $200,000 in it and received over $400,000 more two weeks later. The account maintained a balance as high as $858,757.12 and was regularly holding several hundred thousand dollars. The Crown is correct that some of those transactions were the result of deposits from Mr. Dastani, but by no means are they the only transactions on the account. I have no evidence that all of the other transactions were money laundering and I am lead to a finding that the Dastani transactions were among many similarly large dollar transactions whose bona fides are not questioned. Any argument that the dollar value of Mr. Dastani's deposits were in and of themselves suggestive of money laundering so as to affix Mr. James with knowledge of their character is considerably weakened by the context of the Eveline IT account activity.

[100] I agree with the Crown argument that the Eveline IT activity makes out the actus reus of Count 1, but without the evidence of Afshin Dastani the Crown has not proven the mens rea beyond a reasonable doubt. I have completely rejected Mr. Dastani as a credible witness and Mr. James is therefore acquitted of Counts 1 and 2 on Information 12-04751.

[101] Count 3 on Information 12-04751 alleges fraud on the part of Mr. James to defraud the Government of Canada by assisting Mr. Dastani in his tax evasion scheme. I accept the documentary evidence insofar as Mr. Dastani did seek to evade taxes by means of both setting up his offshore company TICO and by filing false Voluntary Disclosures to CRA by his lawyer Russell Laishley. As I have said above, having rejected Mr. Dastani's evidence as unworthy of belief, I am left with TICO invoices on Mr. James computer, and substantial cash in Mr. Dastani's residence seized by the RCMP during the MLAT Warrant execution. I have already described the evidential gap which affects the invoices. I also consider the evidence from Mr. Dastani's correspondence with Ms. Arroyo in which he admits that the idea of false invoices from TICO was Dastani's idea from before he met Mr. James. The cash and false invoices are quite suspicious but do not elevate the evidence to a level of proof beyond a reasonable doubt. Mr. James is acquitted of Count 3.

Counts 5 and 8 on Information 12-04751 – Laundering Property Obtained by Crime, and Possession of Property Obtained by Crime by James Associates

[102] The documentary evidence also reveals that on May 31, 2010 a Bank Draft from NSO payable to James Associates in the amount of $419,500 was deposited to Mr. James' personal account 6421142 (Account 142). Those account records commence on January 22, 2007 but, given that the account already had over $120,000 in it at that time, it is clear that Account 142 was opened before that day. As with the Eveline IT account, Account 142 showed a large number of high value deposits and withdrawals and a commensurately high value of retained deposits. In the period of January 22, 2007 until the end of the records on November 30, 2011 there are dozens of large value deposits and withdrawals and many in excess of one million dollars. The balance of Account 142 was most often in the millions. Aside from Mr. Dastani's cheque of $419,500 from May 31, 2010 there is no evidence that any of the dozens of other high value deposits and withdrawals were less than bona fides. It is quite suspicious that Mr. James should deposit a client's cheque payable to his law firm into his own personal account, but the overall context of the account was such that he was regularly moving significant sums of money in and out of his personal account. The reasons for all the other transactions form an evidential gap, and it would be speculative to find that they were also money laundering. I cannot therefore find on the account information of Account 142 that the $419,500 deposit was such that Mr. James would, upon seeing it, know that it was property obtained by crime, which is the offence charged.

[103] The only evidence which the Crown offers as proving knowledge on the part of James and Associates that the $419,500 NSO bank draft was from unlawful activity comes from Afshin Dastani. It was his evidence that he told Mr. James that after the RCMP raided his house to execute the MLAT warrant he told Mr. James this and was told to give the money to Mr. James so that it was out of reach of the authorities. As the Crown conceded, having rejected Mr. Dastani's testimony as not credible I cannot rely on it to find knowledge on the part of Mr. James beyond a reasonable doubt on this point. He is acquitted of Counts 5 and 8 on Information 12-04751.

Information 12-07774

[104] All of these charges relate to the period from May 25, 2010 to August 31, 2011, namely the period immediately following the RCMP execution of the MLAT Warrant.

Count 1 – Exporting, and Count 4 – Conspiracy to Export Ephedrine

[105] The external circumstances of the offences are made out by the Canada Post shipping receipts, incorporation documents of Nutrition Services and 2247472 Ontario Inc. and the evidence of Mr. and Mrs. Hunt and Mr. Baker. Those individuals received packages within Ontario and brought them to Toronto. None of those witnesses has evidence that Mr. James was knowledgeable that the packages were destined for customers abroad, which is a constituent element of exporting.

[106] There is ample evidence that Mr. James was paying suppliers on behalf of Mr. Dastani, namely Nutrition Club or Canada Post. Mr. Dastani's evidence was that Mr. James paid the Canada Post bills but was not knowledgeable about where Canada Post was shipping to. I have rejected Mr. Dastani's testimony as not credible, and since he is the principal source of evidence that Mr. James knew that the ephedrine received was for exportation I have a reasonable doubt on this charge. Mr. James is entitled to the benefit of that doubt and he is acquitted.

Count 2 – Laundering Property Obtained by Crime, Count 3 - Possession of Proceeds of Crime, and Count 5 – Conspiracy to Launder Proceeds of Crime

[107] In the period from early March 2011 until late April 2011 Mr. Dastani, via his company Nutrition Services, transferred money to another of his companies Actively Managed Products. Actively Managed Products was a successor to TICO, and existed for no other reason than reducing Dastani's stated tax liability. Those monies totalled $169,228.09 and ended up in the account IT Eveline, which was controlled by Mr. James. I believe Mr. Dastani to the extent that he admits that he continued to export ephedrine in this time period and that those monies were therefore the product of crime, namely exporting a Schedule VI substance under the CDSA. There is no other explanation on the evidence as to why he would come into such sums of money. The actus reus of these offences are made out.

[108] I have rejected Mr. Dastani's evidence as not believable, and apart from the testimony of Mr. Dastani that he told Mr. James about the illicit nature of his business, there is no cogent evidence which leads me to a finding that Mr. James knew that the $169,228.09 was the proceeds of crime. In the circumstances he is entitled to be acquitted on those charges.

[109] For these reasons Mr. James is acquitted of all charges.

Released: January 7, 2016

Signed: "Justice David S. Rose"