Her Majesty the Queen v. Michael Witen, 2012 ONSC 4151

COURT FILE NO.: CJ6699

DATE: 2011-06-27

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

HER MAJESTY THE QUEEN

Respondent

– and –

Michael Witen

Applicant

C. Braid, for the Crown

R. Posner for the Respondent

HEARD: June 11, 2012

THE HONOURABLE MR. JUSTICE P.B. HAMBLY

REASONS FOR JUDGMENT

1. Introduction

[1] Michael Witen (“Witen”) was convicted on August 30, 2011 of two counts of defrauding the federal government between January 1, 1998 and March 31, 2007. He entered a no contest not guilty plea. The crown and the defence filed an agreed statement of facts. He appears before me to be sentenced.

2. The Offences

[2] Michael Witen ("Witen") was charged with defrauding the federal government under the Criminal Code, by using his position as a tax preparer to have his clients submit false expenses on their income tax returns and thereby to pay less taxes than they lawfully owed between January 1, 1998 and March 31, 2007. Witen was an accountant and a tax preparer. The Canada Revenue Agency ("CRA") did an investigation in 2003 and 2004 of tax evasion by Cantech Manufacturing ("Cantech") which was a client of Witen. Cantech was owned by Karl Straker ("Straker") and Milton Thomas ("Thomas"). CRA obtained search warrants to search Witen's home and office and the homes of the owners of Cantech and the office of Cantech on February 11, 2004. Following the search, CRA laid charges under the Income Tax Act ("ITA") against Cantech, its owners and Witen. Witen was served with a summons on the “Cantech charges” on November 1, 2005. CRA used the documents which they seized from the searches on February 11, 2004 to obtain production orders of the banking records of a number of companies and individuals referred to in the documents that they seized on February 11, 2004. It used the documents obtained from the production orders and documents obtained from the first search to obtain search warrants to search Witen's home and office again on February 22, 2006 and search warrants to search 21 other locations. There were over 200 searchers involved in the search. On June 6, 2007, Witen was arrested and charged with several counts of fraud under the Criminal Code, based on the total police investigation. These charges are referred to as the "expanded Witen charges". It is out of this investigation that the current charges arise.

[3] The first count relates to a fraudulent scheme which CRA calls "circle of payments", by which Witen’s clients evaded payment of income tax. In its simplest form, Witen sent an invoice to a client for work that was never performed, plus GST of 7%. The client paid the invoice to Witen and recorded it in its financial records. Witen prepared the client's income tax return in which he deducted the amount of the invoice as a business expense. Witen also claimed on the client's behalf a GST input credit in the amount of 7% in determining the amount of GST which the client was obliged to pay to the government. He paid the amount that he had received less a commission of between 10% and 15% back to the client. Assuming a commission of 15%, the client was paid back 77% of the invoice. On a $100 invoice the scheme resulted in the following:

Fictitious Services $100

GST $ 7

Total: $107

Less Commission - $ 15

Total: $ 82

% paid back $82 x 100 = 77%

$107

There was a substantial difference in the client's favour between the commission which the client paid to Witen and the amount of taxes which the client saved. On a $100 invoice assuming that the client was at a marginal tax rate of 50% the savings to the client were as follows:

Tax savings $50

Less Commission - $15

$35

Plus GST input credit $ 7

Total Savings $42

The client did not report the money on his income tax return that was refunded to him by Witen and Witen did not report the commission income on his income tax return. The loss to the federal government was the sum of the fraudulent deduction and GST input credit in the amount of $57 on an invoice in the amount of $100. Witen attempted to hide the scheme by arranging to have the payments made through shell numbered corporations and into multiple bank accounts that he controlled. The parties agree that the amount by which Witen defrauded the federal government in count 1 is $1,038,905.

[4] The second count relates to a “false childcare” expense scheme. Witen maintained a list of false childcare providers. These were people with low incomes who would not be required to pay tax. He had a second list of taxpaying clients. He prepared tax returns for these clients. On their behalf, he claimed childcare expenses for childcare that they never received. He showed the childcare being provided by people on the low income list who never provided it. Witen had 20 clients who falsely claimed child care expenses. He had six clients who falsely claimed child care income. The tax paying clients were not aware that Witen was claiming childcare expenses on their behalf. The persons whom Witen claimed were providing childcare were not aware that he was doing so. The parties agree that the Federal Government was defrauded by this scheme in the total amount of $92,507.

[5] The parties agree that in the two schemes, the total amount of taxes by which the federal government was defrauded was $1,131,412. They also agree that the total amount by which Witen profited was $448,000.

[6] Six of Witen's clients, (four including three persons and one company in addition to Straker and Thomas) between April 2007 and July 2010, pleaded guilty to charges of evading income tax under the Income Tax Act. The facts to which they admitted all involved participation in the circle of payment scheme which they claimed was proposed to them by Witen and in which Witen participated. The court imposed fines being a percentage of the tax evaded on joint submissions ranging from $34,000 to $116,000.

3. Procedural History

[7] On the expanded Witen charges, Witen elected to have a preliminary hearing and to be tried by a court composed of a judge and a jury. He was committed for trial. A trial date was set in Superior Court. He brought an application to have the charges stayed on grounds of delay, pursuant to sections 11(b) and 24(1) of the Charter, and to have the evidence acquired by the police in the searches and as a result of the searches excluded from evidence, pursuant to sections 8 and 24(2) of the Charter. The trial judge denied both applications. Witen entered a no contest plea of not guilty based on an agreed statement of facts and was convicted. A date was set for the Crown to introduce evidence proving aggravating facts that were not admitted. The Crown abandoned this plan. A date was set of September 7, 2010 for a sentencing hearing. On September 7, 2010, Regional Senior Justice Glithero declared a mistrial on the grounds that the trial judge had been ill throughout the proceedings in Superior Court. New dates were set for the Charter motions to be argued before me. I denied the application brought on grounds of delay on November 22, 2010 and the application alleging illegal searches on May 2, 2011. Mr. Witen entered a no contest guilty plea before me on August 30, 2011.

4. The Accused

[8] Information was provided about Mr. Witen through the PSR report dated January 20, 2012 and from the psychiatric report of Dr. J. Rootenberg dated May 18, 2012. Four letters of character reference were provided – two from clients and two from professional friends. They all speak highly of his personal qualities and express the opinion that incarceration would be difficult for him.

[9] Mr. Witen is 61. He is one of two children. He had a brother who was 3 years older and who died at the age of 12. His father was in the military. The family frequently moved within Canada. He was closer to his mother than he was to his father. His mother died when Mr. Witen was age 15. Mr. Witen is highly intelligent. He has an MA in urban planning from the University of Waterloo. He developed an interest in accounting and took courses in accounting, although he has no certification in this field. He set up a tax preparer business in 1972. The business was successful. It was the income derived from this business which supported the family. He sold the business in 2010. Recently he has engaged in a business processing scientific research credit claims known as SRED claims. He anticipates that planned changes in legislation may adversely affect his business. The only information about his financial position came from his lawyer, obtained by him from Mr. Witen at counsel table, in answer to questions posed by the court. Counsel informed the court that he has earned slightly in excess of $100,000 per year for the last two years. He has no assets of any significance in his name. The only family asset is the matrimonial home at 110 Woodbend Crescent, Waterloo, which is registered in his wife's name. It is mortgage free and Mr. Witen estimates the value to be about $450,000.

[10] Mr. Witen was married to his wife Jennifer when he was 18. They have three children – a son age 41 and two daughters aged 33 and 31. His son is divorced. He has two children, age 16 and 9. Mr. Witen’s children are all very well educated. They have university degrees and are professional people. His son and his older daughter work in his business. His children are very supportive of him.

[11] Jennifer Witen was diagnosed with Parkinson's disease about 10 years ago. The disease is progressive. Mr. Witen cares for her. He assists her in dressing. She cannot hold a book. He reads to her. No medical information was filed about Jennifer Witen. However she testified twice in the proceedings. I noted that her condition appeared to be significantly worse on the second occasion. Obviously the disease is progressive. The incarceration of Mr. Witen will make him unavailable to her as a caregiver. This will be a substantial loss to her. Also his incarceration will have an adverse affect on his business to the point that his business will likely not survive.

5. The Law

A. Relevant Sections of the Criminal Code

(1) The Offence of Fraud

380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,

(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding ten years, where the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars

(2) Principles of Sentencing

The relevant principles of sentencing are set out in the following sections of the Criminal Code:

718. The fundamental purpose of sentencing is to contribute, along with crime prevention initiatives, to respect for the law and the maintenance of a just, peaceful and safe society by imposing just sanctions that have one or more of the following objectives:

(a) to denounce unlawful conduct;

(b) to deter the offender and other persons from committing offences;

(c) to separate offenders from society, where necessary;

(d) to assist in rehabilitating offenders;

(e) to provide reparations for harm done to victims or to the community; and

(f) to promote a sense of responsibility in offenders, and acknowledgment of the harm done to victims and to the community.

718.1. A sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender.

718.2 A court that imposes a sentence shall also take into consideration the following principles:

(a) a sentence should be increased or reduced to account for any relevant aggravating or mitigating circumstances relating to the offence or the offender, and, without limiting the generality of the foregoing,

(iii) evidence that the offender, in committing the offence, abused a position of trust or authority in relation to the victim,

shall be deemed to be aggravating circumstances;

(b) a sentence should be similar to sentences imposed on similar offenders for similar offences committed in similar circumstances;

(d) an offender should not be deprived of liberty, if less restrictive sanctions may be appropriate in the circumstances; and

(e) all available sanctions other than imprisonment that are reasonable in the circumstances should be considered for all offenders, with particular attention to the circumstances of aboriginal offenders.

(3) Conditional Sentence

742.1 If a person is convicted of an offence, other than … an offence punishable by a minimum term of imprisonment and the court imposes a sentence of imprisonment of less than two years and is satisfied that the service of the sentence in the community would not endanger the safety of the community and would be consistent with the fundamental purpose and principles of sentencing set out in sections 718 to 718.2, the court may, for the purpose of supervising the offender's behaviour in the community, order that the offender serve the sentence in the community, subject to the offender's compliance with the conditions imposed under section 742.3.

(4) Proceeds of Crime: Forfeiture, Fine or Prison in Default

[12] The following sections of the Criminal Code are relevant:

462.3 (1) In this Part,

"designated offence" means

(a) any offence that may be prosecuted as an indictable offence under this or any other Act of Parliament, other than an indictable offence prescribed by regulation

"proceeds of crime" means any property, benefit or advantage, within or outside Canada, obtained or derived directly or indirectly as a result of

(a) the commission in Canada of a designated offence

462.37(1) Subject to this section and sections 462.39 to 462.41, where an offender is convicted, or discharged under section 730, of a designated offence and the court imposing sentence on the offender, on application of the Attorney General, is satisfied, on a balance of probabilities, that any property is proceeds of crime and that the designated offence was committed in relation to that property, the court shall order that the property be forfeited to Her Majesty to be disposed of as the Attorney General directs or otherwise dealt with in accordance with the law.

(2) Where the evidence does not establish to the satisfaction of the court that the designated offence of which the offender is convicted, or discharged under section 730, was committed in relation to property in respect of which an order of forfeiture would otherwise be made under subsection (1) but the court is satisfied, beyond a reasonable doubt, that that property is proceeds of crime, the court may make an order of forfeiture under subsection (1) in relation to that property.

(3) If a court is satisfied that an order of forfeiture under subsection (1) or (2.01) should be made in respect of any property of an offender but that the property or any part of or interest in the property cannot be made subject to an order, the court may, instead of ordering the property or any part of or interest in the property to be forfeited, order the offender to pay a fine in an amount equal to the value of the property or the part of or interest in the property. In particular, a court may order the offender to pay a fine if the property or any part of or interest in the property

(a) cannot, on the exercise of due diligence, be located;

(b) has been transferred to a third party;

(c) is located outside Canada;

(d) has been substantially diminished in value or rendered worthless; or

(e) has been commingled with other property that cannot be divided without difficulty.

(4) Where a court orders an offender to pay a fine pursuant to subsection (3), the court shall

(a) impose, in default of payment of that fine, a term of imprisonment

(i) not exceeding six months, where the amount of the fine does not exceed ten thousand dollars,

(ii) of not less than six months and not exceeding twelve months, where the amount of the fine exceeds ten thousand dollars but does not exceed twenty thousand dollars,

(iii) of not less than twelve months and not exceeding eighteen months, where the amount of the fine exceeds twenty thousand dollars but does not exceed fifty thousand dollars,

(iv) of not less than eighteen months and not exceeding two years, where the amount of the fine exceeds fifty thousand dollars but does not exceed one hundred thousand dollars,

(v) of not less than two years and not exceeding three years, where the amount of the fine exceeds one hundred thousand dollars but does not exceed two hundred and fifty thousand dollars,

(vi) of not less than three years and not exceeding five years, where the amount of the fine exceeds two hundred and fifty thousand dollars but does not exceed one million dollars, or

(vii) of not less than five years and not exceeding ten years, where the amount of the fine exceeds one million dollars; and

(b) direct that the term of imprisonment imposed pursuant to paragraph (a) be served consecutively to any other term of imprisonment imposed on the offender or that the offender is then serving.

(5) Amendments to the Criminal Code Not Applicable to the Accused

Fraud

380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,

(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars;

Sentencing - aggravating circumstances

380.1 (1) Without limiting the generality of section 718.2, where a court imposes a sentence for an offence referred to in section 380, 382, 382.1 or 400, it shall consider the following as aggravating circumstances:

(a) the magnitude, complexity, duration or degree of planning of the fraud committed was significant;

(c) the offence involved a large number of victims;

(c.1) the offence had a significant impact on the victims given their personal circumstances including their age, health and financial situation;

(d) in committing the offence, the offender took advantage of the high regard in which the offender was held in the community;

(e) the offender did not comply with a licensing requirement, or professional standard, that is normally applicable to the activity or conduct that forms

the subject-matter of the offence; and

Aggravating circumstance - value of the fraud

(1.1) Without limiting the generality of section 718.2, when a court imposes a sentence for an offence referred to in section 382, 382.1 or 400, it shall also consider as an aggravating circumstance the fact that the value of the fraud committed exceeded one million dollars.

Non-mitigating factors

(2) When a court imposes a sentence for an offence referred to in section 380, 382, 382.1 or 400, it shall not consider as mitigating circumstances the offender's employment, employment skills or status or reputation in the community if those circumstances were relevant to, contributed to, or were used in the commission of the

B. Case Law

(1) Nature of the Offence of Income Tax Evasion

R. v. Knox Contracting, 1990 CanLII 71 (SCC), [1990] 2 S.C.R. 338 (S.C.C.)

[13] In Knox the Supreme Court of Canada considered whether an appeal lay in the issuance of search warrants for the investigation of offences under the Income Tax Act. The court held in the judgment of Justice Cory that there was no appeal because offences under the Income Tax Act were criminal in nature. Regarding the nature of the offence of income tax evasion Justice Cory stated the following:

17 It is fitting and appropriate that the s. 239 offences be considered as criminal law. The Income Tax Act is a major source of funds for the federal government. Its provisions are applicable to most adult Canadians. The vast majority pay their income tax by way of payroll deduction with little or no opportunity for evasion or misstatement. Those who do evade the payment of income tax not only cheat the State of what is owing to it, but inevitably increase the burden placed upon the honest taxpayers. It is ironic that those who evade payment of taxes think nothing of availing themselves of the innumerable services which the State provides by means of taxes collected from others.

18 The entire system of levying and collecting income tax is dependent upon the integrity of the taxpayer in reporting and assessing income. If the system is to work, the returns must be honestly completed. All taxpayers have the right to know that it is a criminal violation to commit any of the offences described in s. 239. The Act imposes a public duty. A breach of that fundamentally important public duty should constitute a criminal offence.

R. v. Coffin, 2006 QCCA 471, [2006] 210 C.C.C. (3d) 227 (Que. C.A.)

[14] This case arose out of the sponsorship scandal. Between April 1997 and May 2002, the accused sent 373 fraudulent invoices to the Government of Canada and thereby misappropriated $1,556,625. The Québec Court of Appeal replaced a conditional sentence with a prison sentence of 18 months. Regarding the nature of the offence of fraud against the government, the court stated the following:

43 It is generally recognized that the nature and gravity of the offence are fundamental considerations in sentencing. Every sentence must be proportionate to the offence committed, given its nature and the surrounding circumstances²⁶.

44 The Crown prosecutor is correct: this type of fraud risks provoking cynicism in citizens and particularly taxpayers with respect to the public institutions that are the very foundations of democratic life.

45 Taxes are levied to collect the funds necessary to fulfil the needs of citizens, particularly the most impoverished.

46 The fallacious argument that "stealing from the government is not really stealing" cannot be used to downplay the significance of this crime. The government of the country has no assets itself; rather, it manages sums common to all of its citizens. Defrauding the government is equivalent to stealing from one's fellow citizens.

47 The respondent drew up 373 fraudulent invoices, one by one, over a period of more than five years. This cannot be dismissed as a momentary lapse of judgment. We also should not lose sight of the total amount stolen nor of the additional fact that the respondent has made only partial restitution. Finally, even though the respondent's actions do not amount to a breach of trust within the meaning of section 336 Cr.C., the fact remains that he illegitimately took advantage of his privileged position to misappropriate public funds for his own personal use.

(2) Tax Preparers

R. v. Leo-Mensah, 2010 ONCA 139, [2010] O.J. No. 712 (Ont. C.A.)

[15] The accused pleaded guilty to one count of fraud and two counts of income tax evasion under the Income Tax Act. He was a tax preparer. In 2003 and 2005 he submitted 801 tax returns on behalf of clients claiming false charitable donations in the amount of $11.7 million. As a result of these false claims National Revenue issued tax refunds to Mensah’s clients in the amount of $3.28 million. The accused failed to report income resulting from his fraudulent activity and thereby evaded income tax in the amount of $145,776. The accused spent 11 months in pretrial custody. At trial he was sentenced to one day in jail and a fine of $145,776. The Court of Appeal in the judgment of Justice Gillese imposed a prison sentence of two years. Giving the accused credit on a two-for-one basis for the pretrial custody the sentence is equivalent to a sentence of three years and 10 months.

R. v. DiPalma,2002 CanLII 53217 (ON CA), [2002] O.J. No. 2684 (Ont. C.A.); R. v. DiPalma, [2001] O.J. No. 3586 (Ont. S.C.J.)

[16] On March 8, 2001, after a lengthy trial, Justice Templeton convicted the accused of two counts of tax evasion under the Income Tax Act. The accused was a tax preparer. Justice Templeton found that the accused had put in place a scheme that permitted 109 of his clients, who had invested money in a mining exploration company owned by him, to make deductions from their taxable income. The mining company did no work. The investments were lost. The clients lost their money. The accused began implementation of the scheme in 1990. It continued over a number of years. The federal government was defrauded of $756,272. The accused profited in the amount of $200,000. Many of the people who invested money with the accused were elderly and did not speak English. They trusted him to act in their best interests. Justice Templeton stated the following:

20 I adopt the sentiments of Mr. Justice Evans in R. v. Montemurro, [1984] O.J. No. 631, in which he said that in this type of case, the motivation is greed. Particularly disturbing in the case before me is that Mr. DiPalma, using his knowledge of tax matters and the preparation of tax returns, preyed on people who implicitly trusted him and used them to achieve his own ends.

21 A number of witnesses testified as to the confidence they had in Mr. DiPalma. They were clearly at a disadvantage both as to their language skills, the intent and effect of the agreements they signed and their knowledge of tax matters. He has used his intellect to not only defraud the federal Government but has taken advantage of the lack of sophistication of his clients in these matters. The commission of these offences involved a great deal of thought, preparation and determination. The aura of legitimacy created by reference to a lawyer and other professionals in the informational documents and throughout the investment scam was a carefully designed smoke screen.

And:

27 … A message must be sent that neither society nor the courts will tolerate fraud upon the taxation system in this country. The taxation system is one of the foundations of our society that allow all people in this country access to education, medical care and social services. All of us must pay, but in so doing, all of us benefit every day of our lives.

Justice Templeton imposed a total sentence of 44 months, a period of 3 years and 8 months and a fine of $1,180,771 being 150% of the amount by which the federal government had been defrauded. She did not impose a jail sentence in default of payment because of the inability of the accused to pay a fine. The Court of Appeal upheld both the conviction and sentence in reasons reported at 2002 CanLII 53217 (ON CA), [2002] O.J. No. 2684.

R. v. Mohan, March 23, 2010 at Brampton, Ontario (Ont. S.C.J.)

[17] The accused was a tax preparer. Between December 31, 2001 and November 31, 2004, she claimed false expenses on 587 income tax returns prepared by her for 427 clients for investment in a company that performed no work. The clients received tax refunds of about $2 million. They paid a portion of the refunds to the accused. She had spent 17 months in pretrial custody. Justice Durno approved a joint submission following a plea of guilty of an additional eight months with no fine and no probation. Giving credit on the ratio of two-for-one for the presentence custody, the sentence was equivalent to a sentence of 42 months or 3 years and 6 months.

R. v. Griffin, [1992] O.J. No. 4005 (Ont.Ct.Gen.Divn.)

[18] The accused pleaded guilty to tax evasion under the Income Tax Act. The accused was a tax preparer who prepared 150 false income tax returns for recent immigrants from Eastern Europe, in which he made claims for nonexistent expenses. He profited in the relatively modest amount of $25,000 over three years. He made false claims of over $1 million. Justice Feldman (as she then was) imposed a reformatory sentence of 12 months + 3 years probation. She stated the following:

4 The Crown submits that the primary factor in sentencing on tax evasion matters is general deterrence. This is particularly so where the accused is in the business of preparing tax returns for others. A message must be sent out that those engaged in that activity are trusted both by their clients, by the government, and therefore by the entire community to act with honesty. If they do not, they will be dealt with appropriately. Income tax evasion is a fraud not only on the government but on all members of our society who must each bear their fair burden and who depend on their fellow taxpayers to do so. Tax evasion is not a sport; it is a crime.

(3) Large Scale Fraud Usually Requires a Prison Sentence Which Reflects the Principles of General Deterrence and Denunciation

R. v. Bogart, 2002 CanLII 41073 (ON CA), [2002] O.J. 3039 (Ont.C.A.)

[19] The accused was a doctor who treated HIV patients. He had a large practice of devoted patients. He was badly disabled. He was a cancer survivor. For seven years between January 2, 1990 and December 31, 1996, he fraudulently billed OHIP on average for 200 services per month. He defrauded OHIP in the total amount of $923,780.53. He pleaded guilty in Superior Court after a preliminary hearing. He had served over half of his conditional sentence. He was making regular monthly restitution payments and had paid about 25% of the total fraud. The trial judge imposed a conditional sentence of 2 years – 1 day and three years probation. The Court of Appeal in the judgment of Justice Laskin substituted a sentence of 18 months. After listing the mitigating factors, Justice Laskin stated the following:

21 Despite these mitigating factors, I agree with the Crown that a conditional sentence in this case is demonstrably unfit. Five considerations, taken collectively, warrant a jail term sentence. They are the seriousness of the offence, the respondent's moral blameworthiness, the need for general deterrence, sentences in previous cases of large-scale fraud and the ineffectiveness of a conditional sentence in this case.

And:

(c) General deterrence

29 Two aspects of the need to give effect to general deterrence come into play in this case. First, general deterrence is the most important sentencing principle in major frauds. Second, when general deterrence is "particularly pressing", as it is here, the preferable sanction is incarceration.

30 This court has affirmed that in cases of large-scale fraud committed by a person in a position of trust, the most important sentencing principle is general deterrence. Mitigating factors and even rehabilitation become secondary. In R. v. Bertram and Wood (1990), 40 O.A.C. 317, this court observed that most major frauds are committed - as this one was - by well-educated persons of previous good character. Thus the court held at p. 319,

The sentences in such cases are not really concerned with rehabilitation. Instead, they are concerned with general deterrence and with warning such persons that substantial penitentiary sentences will follow this type of crime, to say nothing of the serious disgrace to them and everyone connected with them and their probable financial ruin. [Emphasis added.]

31 In R. v. Gray (L.V.) et al. (1995), 1995 CanLII 18 (ON CA), 76 O.A.C. 387 at 398-99, our court again stressed the need for general deterrence in fraud cases:

there are few crimes where the aspect of deterrence is more significant. It is not a crime of impulse and is of a type that is normally committed by a person who is knowledgeable and should be aware of the consequences. That awareness comes from sentences given to others.

32 The trial judge, however, appears to have downplayed the importance of general deterrence in this case and instead emphasized other sentencing principles:

Section 718 sets out certain purposes of sentencing and s. 718.2 sets out certain principles of sentencing. They need not be repeated here. The Court is required to consider all of those purposes and principles of sentencing. In my view, the primary purpose in this case is to denounce the unlawful conduct of the accused, to provide reparation for harm done to victims or to the community and to promote a sense of responsibility in offenders and an acknowledgement of harm done to victims and to the community.

Dr. Bogart, ... [y]ou are undoubtedly gifted with respect to treatment of patients, as shown by the persons who have come forward and spoke on your behalf, and of your assistance in their continuing in life, in some instances, if not recovery, at least to cope. I cannot see how society would benefit from your incarceration. Rather, there is a possibility that some will suffer.

33 Still, the Supreme Court of Canada has acknowledged that a conditional sentence can meet the need for general deterrence in some cases. See R. v. Proulx (2000), 2000 SCC 5, 140 C.C.C. (3d) 449 (S.C.C.). But where the need for general deterrence is "particularly pressing", incarceration will normally be the preferable option. In R. v. Wismayer (1997), 1997 CanLII 3294 (ON CA), 115 C.C.C. (3d) 18, one of this court's leading decisions on conditional sentences, Rosenberg J.A. recognized at p. 38 that the need for general deterrence is particularly pressing in the case of a large-scale, well-planned fraud by a person in a position of trust:

General deterrence, as the principal objective animating the refusal to impose a conditional sentence, should be reserved for those offences that are likely to be affected by a general deterrent effect. Large scale well-planned fraud by persons in positions of trust, such as the accused in R. v. Pierce, would seem to be one of those offences.

34 Finlayson J.A. made the same point in R. v. Pierce (1997), 1997 CanLII 3020 (ON CA), 114 C.C.C. (3d) 23 at 40:

I would ... refuse the application to permit the appellant to serve the sentence in the community. The abuse of a position of trust or authority in relation to a victim is an express aggravating circumstance set out in the sentencing guidelines under s. 718.2. This factor has traditionally drawn a severe custodial term even with first offenders.

And:

(d) Sentences in previous cases of large scale fraud

36 Both before and after Parliament's introduction of conditional sentences, cases of large-scale fraud by persons in a position of trust have typically resulted in substantial jail sentences. In his recent judgment in R. v. Dobis (2002), 2002 CanLII 32815 (ON CA), 58 O.R. (3d) 536 (C.A.), my colleague MacPherson J.A. has thoroughly reviewed these cases. His review shows that ordinarily these frauds merit a penitentiary sentence in the range of three to five years. Even where mitigating considerations have reduced the sentence to the reformatory range, a jail term, not a sentence served in the community, has usually been imposed.

and:

(e) A conditional sentence is ineffective in this case

40 To be effective, usually a conditional sentence must be punitive. What ordinarily makes a conditional sentence punitive is house arrest or a stringent curfew. For the respondent, both of these alternatives are impractical because his medical office is in his home. Thus, even while serving his conditional sentence he continues to live and work as he did before, with virtually no restrictions on his liberty. For defrauding the public purse of nearly one million dollars, his sentence amounts to little more than probation. A conditional sentence in this case sends the wrong message about health care fraud both to practitioners and the public at large.

41 Taking these five considerations together, I am persuaded that a conditional sentence for the respondent is demonstrably unfit. He must receive a jail sentence for his crime. The remaining question is how long a jail sentence.

42 Ordinarily, a fraud on OHIP of this magnitude by a physician would call for a jail sentence of at least four years in the penitentiary. However, the quite unusual mitigating factors that I referred to earlier in these reasons justify some reduction from this range. In addition, the respondent is entitled to credit for the 13 1/2 months of his conditional sentence he has already served. Taking these considerations into account, in my view a fit sentence is 18 months in jail.

D. DISPOSITION

43 I would grant the Crown leave to appeal the respondent's sentence and I would allow the appeal against sentence. I would impose a jail sentence of 18 months, to begin the day the respondent surrenders into custody.

R. v. Drabinsky, 2009 CanLII 41220 (ON SC), [2009] O.J. 3282 (Ont. S.C.J.)

[20] The accused Garth Drabinsky and Myron Gottlieb operated two prominent theater companies in Toronto called MyGar and its successor Livent. The accused profited by their illegal scheme of misrepresentation in the amount of about $8 million. The trial judge imposed sentences of seven years on Drabinsky and six years on Gottlieb. The Court of Appeal reduced the sentences to six years and five years respectively.

The Court of Appeal described the illegal scheme perpetrated by the accused as follows:

17 According to the Crown's theory, the MyGar fraud had its origin in a scheme hatched by Drabinsky and Gottlieb in 1990 to circumvent restrictions on the advances MyGar could make to them as its two shareholders. Under MyGar's lending agreement with its bank, advances to Drabinsky and Gottlieb were limited to fixed amounts. Drabinsky and Gottlieb wanted to take more money out of MyGar than the arrangements with the bank permitted. To do this, they entered into agreements with two persons whose companies did extensive construction-related work for MyGar. Pursuant to these agreements, Drabinsky and Gottlieb, or entities controlled by them, would bill those companies for fictional services and create fraudulent invoices to support those billings. The companies would pay Drabinsky and Gottlieb the amounts claimed for the non-existent services and then add those costs to the invoices submitted to MyGar for construction work actually done on the Pantages Theatre or the MyGar offices. This was referred to in argument as "the kickback scheme".

18 Under the kickback scheme, the payments to Drabinsky and Gottlieb, which were in reality advances from MyGar, were hidden under fraudulent invoices for services never rendered by the appellants, as well as fraudulent invoices that inflated the amount claimed by companies who had done work for MyGar. Drabinsky and Gottlieb received payments totalling slightly over $8.1 million between 1990 and 1993.

19 Most of the payments made to Drabinsky and Gottlieb under the above-described scheme were disguised in MyGar's financial statements as either fixed assets or preproduction costs. Eckstein, who came to work for MyGar in 1990 after the kickback scheme was in place, testified that Drabinsky and Gottlieb made the decision to book the kickbacks as fixed assets and preproduction costs. He would from time to time receive written instructions from Gottlieb concerning specific payments.

20 The payments to Drabinsky and Gottlieb should have been recorded in MyGar's books as advances from MyGar to its shareholders. If, however, as the fraudulent scheme devised by Drabinsky and Gottlieb represented, the entirety of the payments had been for construction work, those amounts could properly be booked to fixed assets and preproduction costs. On Eckstein's evidence, Drabinsky and Gottlieb instructed that the kickback payments be treated for accounting purposes as what they appeared to be in the fraudulent documentation.

21 Eckstein testified that before MyGar went public in the spring of 1993, he recommended to Drabinsky and Gottlieb that MyGar should take a $4 to $6 million write-down of its assets so that their inflated value, occasioned by the treatment of the fraudulent payments to Drabinsky and Gottlieb, would be removed from MyGar's financial picture before it went public. Eckstein testified that Drabinsky and Gottlieb emphatically rejected this proposal, saying that a write-down would "look terrible" and would interfere with the ability to market the IPO. Consequently, the MyGar financial statements used for the IPO showed assets of $90 million, an overstatement of about $6 million.

Regarding the appropriate sentence the Court of Appeal stated the following:

157 In her reasons for sentence at para. 25, the trial judge, after referring to a long line of authority from this court, held that general deterrence and denunciation were of primary importance when sentencing persons who as officers and directors of public companies use their positions to engage in large scale frauds that compromise the integrity of the public market place.

158 Counsel for Drabinsky submit that the trial judge erred in principle by focusing on general deterrence and denunciation. They argue that there is little concrete evidence to support the contention that longer sentences provide more effective general deterrence than shorter jail terms.

159 The deterrent value of any sentence is a matter of controversy and speculation. However, it would seem that if the prospect of a long jail sentence will deter anyone from planning and committing a crime, it would deter people like the appellants who are intelligent individuals, well aware of potential consequences, and accustomed to weighing potential future risks against potential benefits before taking action: R. v. Gray (L.V.) et al. (1995), 1995 CanLII 18 (ON CA), 76 O.A.C. 387, at 398-99 (C.A.), leave to appeal to SCC refused, [1995] S.C.C.A. No. 116.

160 In any event, this court and all other provincial appellate courts have repeatedly held that denunciation and general deterrence must dominate sentencing for large scale commercial frauds. Denunciation and general deterrence most often find expression in the length of the jail term imposed.

161 The amendments to the fraud provisions made in September 2004, while inapplicable to this case, both raise the maximum sentence and specifically identify certain factors found in sophisticated frauds as aggravating factors. Those are the same factors that have caused appellate courts to stress general deterrence and denunciation in the sentencing of those who engage in large scale premeditated frauds on the public marketplace: see An Act to Amend the Criminal Code (Capital Markets Fraud and Evidence-Gathering), S.C. 2004, c. 3, ss. 2 and 3. The statutory amendments follow the sentencing path cut by the appellate courts.

162 The appellants' argument that longer sentences do not enhance general deterrence ignores that the proper sentence quantification in cases like this is also driven by the need to publicly denounce the appellants' criminal conduct. The length of the sentence imposed is reflective of the appropriate level of denunciation.

163 The trial judge correctly applied binding authority from this court as she was obliged to do. We see no reason to depart from that authority. The trial judge correctly emphasized general deterrence and denunciation in determining the appropriate sentences.

164 After reviewing several authorities, the trial judge fixed the appropriate range of sentence for large scale, premeditated frauds involving public companies at between five and eight years (para. 35). While one might quibble about both ends of that spectrum, the trial judge was correct in determining that crimes like those committed by the appellants must normally attract significant penitentiary terms well beyond the two-year limit applicable to conditional sentences.

165 The trial judge did not, however, reject Drabinsky's submission that she should impose a conditional sentence merely because that sentence was outside of the range of sentencing for this kind of offence. The trial judge appreciated that it was her ultimate responsibility to fix a fit sentence having regard to all relevant factors. She understood that a proper application of the mitigating factors could in some cases result in a fit sentence that was outside of the applicable range: R. v. Nasogaluak, 2010 SCC 6, [2010] 1 S.C.R. 206, at para. 44.

166 It is impossible to catalogue the factors that in combination could justify a sentence below the usually applicable range. We would, however, make two observations. First, the investigation and prosecution of crimes like these is difficult and expensive. It places significant stress on the limited resources available to the police and the prosecution. An early guilty plea coupled with full cooperation with the police and regulators and bona fide efforts to compensate those harmed by the frauds has considerable value to the administration of justice. The presence of those factors, depending of course on the other circumstances, may merit sentences outside of the range.

167 Second, individuals who perpetrate frauds like these are usually seen in the community as solid, responsible and law-abiding citizens. Often, they suffer personal and financial ruin as a result of the exposure of their frauds. Those factors cannot, however, alone justify any departure from the range. The offender's prior good character and standing in the community are to some extent the tools by which they commit and sustain frauds over lengthy time periods. Considerable personal hardship, if not ruin, is virtually inevitable upon exposure of one's involvement in these kinds of frauds. It cannot be regarded as the kind of unusual circumstance meriting departure from the range.

168 In holding that prior good character and the personal consequences of the fraud cannot push the appropriate sentence outside of the range, we do not suggest that they are not relevant mitigating factors. They must be considered in determining where within the range the sentence should fall.

169 The trial judge recognized the many mitigating factors advanced on behalf of the appellants. These included their many and diverse contributions to the community, particularly the cultural community, their strong family support, their sterling reputations in the community, the absence of any criminal record and, in Drabinsky's case, his significant physical disability. Drabinsky suffers from the effects of polio, a disease he had as a young child. His mobility is impaired and he is often in considerable pain. His problems will worsen with age.

170 We agree with the trial judge's determination that the mitigating factors, while impressive, did not justify a departure from the established range of sentence. In particular, there is no evidence that Drabinsky's health problems, while significant, cannot be addressed by the correctional authorities. Certainly, on the trial evidence, Drabinsky leads a very full and active life, despite his very real disability. We think the trial judge was correct in determining that the sentences should fall within the range of sentences imposed for this type of offence.

R. v. DiGiuseppe 2008 ONCJ 127, [2008] O.J. No. 1107; affirmed 2010 ONCA 91

[21] On March 19, 2008, Justice P. Tetley of the Ontario Court of Justice convicted the accused of fraud over $5,000 after a trial. The accused operated two adult entertainment facilities in Richmond Hill, which he controlled through three corporations. Between October 1, 1996 and August 31, 1999, the accused caused the companies to fail to pay income tax in the amount of over 3 million dollars by the “intentional suppression, concealment and non-reporting of income” (para. 7). Justice Tetley sentenced him to a penitentiary sentence of six years and a fine of $2 million or one year consecutive in default of payment. Justice Tetley stated the following:

20 The authorities cited by counsel and other considered sentencing cases have been summarized in Appendix "A" to this sentencing judgment. Taken collectively these cases confirm that fraud over $5,000 is serious offence which generally attracts a significant custodial sentence: R. v. Bogart at 396; R. v. Coffin, at para. 49; R. v. Dobis, at 273; R. v. Williams at para. 28; R. v. Bertram, at page 2.

21 The predominant consideration in sentencing individuals who have occupied positions of trust while perpetrating a fraud is the factor of general deterrence as statutorily acknowledged in section 718.2 of the Criminal Code: (citations omitted)

22 A large scale or "major" fraud involving millions of dollars has resulted in the imposition of penitentiary sentences ranging from three to ten years, with sentences of three to five years noted as common and a sentence of six years concluded as being within "the correct range of sentences for major frauds". (citations omitted)

The Court of Appeal upheld the sentence.

(4) Reduction of Sentence for Delay Insufficient to Constitute a Charter Breach and Other State Misconduct

R. v. Bosley (1992), 1992 CanLII 2838 (ON CA), 18 W.C.B. (2d) 179 (Ont. C.A.)

[22] In Bosley, the accused was convicted on charges of forgery, uttering a forged document, fraud and threatening bodily harm. He was sentenced to six months and two years probation. He argued that his right to be tried within a reasonable time guaranteed by section 11(b) of the Charter had been violated by a delay of 17 months between the completion of the evidence and his sentencing. In the judgment of Justice Doherty, the Court of Appeal held that delay, although “close to the line”, was insufficient to constitute a breach of the Charter. Justice Doherty went on to say the following:

Before leaving this issue, I would add that excessive delay which causes prolonged uncertainty for the appellant but does not reach constitutional limits can be taken into consideration as a factor in mitigation of sentence: R. v. Cooper (No. 2) (1977), 1977 CanLII 2103 (ON CA), 35 C.C.C. (2d) 35, 4 C.R. (3d) S-10 (Ont. C.A.). The trial judge expressly held that the delay occasioned in this case served as a mitigating factor in his determination of the appropriate sentence. The sentence he imposed reflected that mitigation. (p. 9 QL version)

R. v. Nasogaluak (2010), 2010 SCC 6, 251 C.C.C. 293 (S.C.C.)

[23] The accused was assaulted by the police while he was being investigated on the charge of impaired driving. He pleaded guilty to the charge. The Criminal Code prescribes a minimum fine of $600. The trial judge, taking into account a breach of the accused rights under the Charter by reason of his being assaulted, imposed a conditional sentence of 12 months. The Supreme Court of Canada in the judgment of Justice LeBel upheld the Alberta Court of Appeal in holding that the breach by the police of the accused’s rights under the Charter could be a mitigating factor on sentence but could not justify reducing the sentence below the minimum prescribed of the Criminal Code. Justice Lebel stated the following:

53 It is important to note that a sentence can be reduced in light of state misconduct even when the incidents complained of do not rise to the level of a Charter breach.

He approved of the above statement by justice Doherty in Bosely.

(5) Conditional Sentences

R. Proulx, (2000) 2000 SCC 5, 140 C.C.C. (3d) 449 (S.C.C.)

[24] The Supreme Court of Canada set out the principles which a trial judge must consider in deciding whether to impose a conditional sentence. There are four conditions that must be satisfied before a conditional may be imposed. – no minimum sentence, a term of imprisonment of less than two years, the safety of the community would not be endangered by the offender serving the sentence in the community and the purpose and principles of sentencing in section 718 to 718.2 would be satisfied by a conditional sentence (para. 46). Any offence which meets these conditions can result in a conditional sentence (paras. 47 and 79). A conditional sentence can satisfy the elements of denunciation and deterrence. Chief Justice Lamer stated the following:

107 Incarceration, which is ordinarily a harsher sanction, may provide more deterrence than a conditional sentence. Judges should be wary, however, of placing too much weight on deterrence when choosing between a conditional sentence and incarceration: see Wismayer, supra, at p. 36. The empirical evidence suggests that the deterrent effect of incarceration is uncertain: see generally Sentencing Reform: A Canadian Approach, supra, at pp. 136-37. Moreover, a conditional sentence can provide significant deterrence if sufficiently punitive conditions are imposed and the public is made aware of the severity of these sentences. There is also the possibility of deterrence through the use of community service orders, including those in which the offender may be obliged to speak to members of the community about the evils of the particular criminal conduct in which he or she engaged, assuming the offender were amenable to such a condition. Nevertheless, there may be circumstances in which the need for deterrence will warrant incarceration. This will depend in part on whether the offence is one in which the effects of incarceration are likely to have a real deterrent effect, as well as on the circumstances of the community in which the offences were committed.

R. v Bunn, 2000 SCC 9, [2000] S.C.J. No. 10 (S.C.C.)

[25] The accused was a lawyer. He converted $86,000 from estates which he held in trust to his own use. He was the sole supporter for his 16-year-old daughter and his disabled wife. He lost a 20 year legal career as a result of the offence. The trial judge sentenced him to two years -1 day. After he was sentenced, the Criminal Code was amended to include the possibility of a conditional sentence. The Supreme Court of Canada, by a majority of 5 to 3, upheld the Manitoba Court of Appeal in substituting a conditional sentence of two years -1 day and 200 hours of community service.

R. v. Kiundert, 2011 ONCA 646 (Ont. C.A.)

[26] The accused was charged with income evasion under the Income Tax Act. He was acquitted by a jury twice. On the third trial by jury after two successful crown appeals the accused was convicted. The trial judge imposed a sentence of one year and a fine of 150% of the income tax paid. The accused failed to pay income tax on income of $1.4 million over four years. The accused was an optometrist. He believed that the imposition of income tax was unconstitutional. His defence was that he lacked the necessary mens rea to support a conviction. The Court of Appeal in the judgment of Justice LaForme substituted a conditional sentence of one year for the one-year prison sentence. The Court of Appeal held that the trial judge erred in holding that there was an absolute rule that a conditional sentence was not appropriate for tax evasion.

R. v. Massoudinia, [2002] O.J. No. 5504 (Ont. S.C.)

[27] Over a one year period, the accused defrauded about 1400 people of over $2 million by causing them to pay fees on a false promise that they could obtain modeling jobs. Following a plea of guilty to a charge of fraud over $5,000 on an agreed statement of facts, Justice Nordheimer imposed a conditional sentence and 300 hours of community service. The accused’s partner who had also been charged, cooperated with the police. He received a conditional sentence on the same facts which raised the issue of parity. On the facts, Justice Nordheimer stated the following:

191 There are certain facts in this case that differentiate it from Dobis and Bogart. In this case the nature of the position of trust in which the defendant stood to his victims is qualitatively different than the position of an employee, who has ready access to the funds of his or her employer, or the position of the physician who can obtain funds from OHIP simply through filing a form. While I accept that almost by definition any fraud involves an element of breach of trust, there is an arms-length aspect to the relationship between businesses and consumers reflected in the age-old adage "buyer beware" that is absent from those other types of relationships.

R. v. Tullock, [2002] O.J. No. 5446 (Ont. S.C.)

[28] The accused pleaded guilty to conspiracy with four others to defraud the federal government of $6.2 million. Through the accused’s cooperation, the police were able to expose a conspiracy to defraud the government of GST by making fictional purchases of heavy equipment. The scheme was exposed and the others charged as a result of the accused’s cooperation with the police. He was 39 years of age, married with three children, had no criminal record, was of previous good character and was diagnosed with bipolar disorder and depression. The crown sought a sentence of 4 to 6 years imprisonment. Justice Durno imposed a conditional sentence of two years less a day and a compensation order for $200,000. He stated the following:

40 Here, primarily because of the combination of the guilty plea, extensive cooperation at a very early stage and the mental health issue, the maximum reformatory term is in the appropriate range and a conditional sentence is available. While I do not quarrel with the Crown's general position of the appropriate term of sentence, in my view that position does not give sufficient weight to the factors I reviewed, particularly the cooperation.

Ewaryst Prokofiew, whom the police regarded as the ringleader and who would not have been apprehended without the cooperation of Tulloch received a sentence of three years.( see R. v. Prokofiew [2005] O.J. No. 1824; affirmed 2010 ONCA 423, [2010] O.J. No. 2498 (C of A))

R. v. Bresnark, 2008 ONCJ 10 (O.C.J.)

[29] The accused was convicted after trial of seven counts of attempted fraud under the Income Tax Act of attempting to obtain tax refunds. The accused filed a false return for himself and on behalf of four others. The amount of false refunds claimed was $1.2 million. He was 47. He had a lengthy related record. Justice M.E. Lane of the Ontario Court of Justice imposed a fine under the Income Tax Act of over $600,000 with five years to pay. She rejected a conditional sentence and imposed a jail sentence of two years - 1 day and probation for 3 years.

R. v. McCarthy, 2008 CanLII 68887 (Ont. S.C.)

[30] The accused overstated the value of his company in order to attract business by recording false sales in the company books. After a trial he was found guilty of fraud on the public regarding the ongoing trading of shares. In separate proceedings two associates, on similar charges, received conditional discharges. There was no evidence that the accused profited personally. Justice Thorburn imposed a conditional sentence of 2 years – 1 day and 240 hours of community service.

(6) Proceeds of Crime: Forfeiture or Fine and Prison in Default

[31] In R. v. Lavigne (2006), 2006 SCC 10, 206 C.C.C. (3d) 449 (S.C.C.), the accused pleaded guilty to charges of conspiring to produce and traffic in cannabis, possession of cannabis for the purpose of trafficking, possession of property obtained by crime and commission of an offence for a criminal organization. He received $150,000 from the crimes in question. The trial judge ([2003] J.Q. no 14742) sentenced him to 19 months, after taking into account pre-sentence custody. He was no longer in possession of the $150,000. Taking into account his ability to pay, the trial judge imposed a reduced fine of $20,000, pursuant to section 462.37(3) of the Criminal Code. The Supreme Court of Canada, in the judgment of Justice Deschamps, held that the trial judge erred in taking into account the accused's ability to pay. Where the property in relation to which an offence has been committed has disappeared, she held that the court has a discretion, taking into account the factors in s. 462.37(a) to (e) to impose a fine instead of forfeiture, equal in amount to the property in question. It has no jurisdiction to reduce the fine on the grounds that the accused has no ability to pay. She held the following:

16 Parliament's intention in enacting the forfeiture provisions was to give teeth to the general sentencing provisions. While the purpose of the latter provisions is to punish an offender for committing a particular offence, the objective of forfeiture is rather to deprive the offender and the criminal organization of the proceeds of their crime and to deter them from committing crimes in the future. The severity and broad scope of the provisions suggest that Parliament is seeking to avert crime by showing that the proceeds of crime themselves, or the equivalent thereof, may be forfeited.

17 The severity shown by Parliament is further illustrated by s. 462.37(2), which provides that where the evidence does not establish a connection between property and the offence of which an offender has been convicted, the property may nevertheless be forfeited if it is proven to be proceeds of crime.

18 Forfeiture of the proceeds of crime is not always practicable, however. The proceeds of a crime may have been used, transferred or transformed, or may simply be impossible to find. To ensure that the proceeds of a crime do not indirectly benefit those who committed it, Parliament has provided that the court may impose a fine instead of forfeiture of the proceeds of crime. It is therefore from the perspective of the objective of the forfeiture provisions that the fine instead of forfeiture must be considered.

And:

35 The fine, as that provision says, is equal to the value of the property. Further, equivalency between the value of the property and the amount of the fine is inherent in the words "instead of". The fine takes the place of forfeiture. For the substitution to be genuine, the value must be equal. The court's discretion applies both to the decision whether or not to impose a fine and to the determination of the value of the property. It must be exercised in light of the evidence, and once this process has been completed, the court may not take the offender's ability to pay into consideration as a basis for deciding either to impose no fine or to reduce the amount of the fine.

She imposed a fine of $150,000 and remanded the case to the trial court to determine the time to pay and the term of imprisonment in default of payment.

6. Discussion

(1) Postion of the Parties

[32] The crown suggests a period of incarceration of 3 years. The amount of $448,018, by which Witen profited from his fraudulent activity, is proceeds of crime. Sections 462.37 (4)(a)(vi) and (b) of the Criminal Code requires the court to impose a fine on Witen in this amount and that he be sentenced to a minimum of 3 years in default of payment, consecutive to the sentence imposed for the offence. The crown does not seek a sentence of incarceration beyond 3 years in default of payment. The only discretion that the court has under these sections of the Criminal Code is in fixing the time for the accused to pay the fine. The crown suggests 3 years.

The position of the defence is that a conditional sentence ought to be imposed. The appropriate period of incarceration is less than 2 years, the accused is not a danger to the public and the principles of sentencing in sections 718 to 718.2 of the Criminal Code can be satisfied by a conditional sentence. The accused should be given 9 years to pay the fine in a fixed amount each year.

(2) Aggravating Factors

[33] 1. The federal government was defrauded of $1.2 million. Witen profited personally in the amount of $448,018. This is a large-scale fraud.

2. Witen’s clients put their trust in him to prepare and file their tax returns lawfully. He did not do so. He was the instigator of the fraudulent scheme. It is true that his clients were participants in the fraud. Six of them pleaded guilty to tax evasion under the Income Tax Act, paid substantial penalties and acquired criminal records. The fact that they became participants in the scheme does not detract from Witen’s breach of the trust that they placed in him.

3. Witen breached the trust that the federal government puts in self-employed taxpayers to set out their real income and expenses. It is an honour system. The government cannot possibly monitor the preparation and filing of tax returns by all self-employed people. By failing to set out properly the income and expenses of not only his clients but also himself, Witen breached that trust.

4. Most people receive salaries and have their taxes deducted at source. Witen failed to pay taxes voluntarily for himself and on behalf of his clients. This increases the burden for providing public services on those who have their taxes deducted at source.

5. Witen conceded on his application for a stay based on an alleged breach of his right guaranteed by section 11(b) of the Charter to be tried within a reasonable time that the delay in bringing the case to trial did not prejudice him financially. Witen knew that CRA had discovered his fraudulent scheme from the time of the first search on February 11, 2004. This was over eight years ago. Witen knew that Revenue Canada had discovered the full reach of his fraudulent activity from the time of the second search on February 22, 2006. This was over six years ago. He was charged with the expanded Witen charges on June 6, 2007, which is over five years ago. Notwithstanding a substantial annual income, Witen has paid nothing in restitution.

6. Witness has demonstrated no remorse or sense of responsibility for what he has done.

7. Witen has been convicted of defrauding the federal government between January 1, 1998 and March 31, 2007. This is a period of 9 years.

8. The idea for the circle of payment scheme was simple. Its implementation by Witen through shell companies and bank accounts in the name of nonexistent persons was complicated. These methods were designed to make it difficult for Revenue Canada investigators to discover it. They reflect Witen’s intelligence and his willingness to apply his intelligence to defraud the government of Canada.

9. The second search involved over 200 investigators. Substantial time and resources of Revenue Canada employees were required to expose the full extent of the fraud.

10. Witen was a tax preparer. Notwithstanding that this occupation requires substantial skill and integrity those who are in this occupation are not members of a professional organization. Professions with professional organizations such as lawyers and doctors have a code of conduct. They have means of enforcing breaches of their professional code of conduct. No such remedy apart from the criminal law is available to sanction Witen’s conduct. Surely a code of conduct for tax preparers would contain a provision that they are under a duty to prepare tax returns for clients which contain valid statements of income and expenses.

11. The new amendments to the Criminal Code increase the maximum sentence for fraud from 10 years to 14 years and list as aggravating factors that the value of the fraud exceeded $1 million and other aggravating factors and non-mitigating factors which would apply to Witen. These new amendments do not apply directly to Witen because they came into effect outside the period of the indictment. They do indicate the seriousness with which Parliament regards the offence which Witen committed.

12. Witen was previously convicted on June 23, 1994 of failing to file his personal tax return and as a director of failing to file six corporate tax returns. He was fined a total of $10,500.

(3) Mitigating Factors

1. Witen did enter a "no contest not guilty plea". He invited the court, through his lawyer, to convict him on an agreed statement of facts. This relieved the crown of the substantial time and expense which would have been required to prove the case.

2. Witen’s wife, Jennifer Witen, suffers from a progressive debilitating disease. Witen cares for her. His incarceration will deprive her of his care and companionship. This will be a hardship on her.

3. Witen is highly regarded by his adult children and by close business associates and friends.

4. Witen’s incarceration will likely end his business.

5. In the stay application, I found that the delay that could be attributed to the crown in bringing this matter to trial was 9 ½ months. I found that this delay was insufficient to result in a breach of the accused’s rights to be tried within a reasonable time under section 11(b) of the Charter. If the sentence hearing had proceeded on the first occasion, the accused could reasonably have expected to be sentenced in early October 2010. When the accused entered a no contest not guilty plea on August 30, 2011, the Court ordered a presentence report. It was not completed on time, as a result of the illness of the person whom the probation office assigned to prepare it. It was finally produced on January 20, 2012 for a sentence hearing set for February 14, 2012. The accused disagreed with much of its contents. His lawyer retained Dr. J. Rootenberg, a psychiatrist, to assess him. He provided a report dated May 18, 2012, which Mr. Witen's lawyer produced. As a result of the combination of the delay resulting from the illness of Justice Harris and difficulties with respect to the presentence report, the sentencing of Mr. Witen has been delayed by about 21 months. Mr. Witen has been subject to the charges for an additional 30 ½ months than would have been the case if this matter had proceeded to trial uninterrupted.

6. Conclusion

[34] In my view the aggravating factors overwhelm the mitigating factors. In the tax preparer cases of DiPalma the accused was sentenced to 3 years and 8 months, in Mensah to the equivalent of 3 years and 10 months and in Mohan to the equivalent of 3 years and 6 months. In Bogart, where the accused defrauded OHIP of $923,780, Justice Laskin stated “Ordinarily, a fraud on OHIP of this magnitude by a physician would call for a jail sentence of at least four years in the penitentiary” (para.42 quoted above). The amounts of the frauds in these cases were comparable to the amount of fraud in this case. In Dabrinsky the Court of Appeal agreed with the trial judge that a sentence for a large-scale fraud on the public must reflect the sentencing principles of general deterrence and denunciation. The fraudulent scheme perpetrated by the accused in that case is remarkably similar to the circle of payments scheme perpetrated by the accused in this case. Particularly egregious in this case is that Mr. Witen has continued to enjoy all the benefits that government provides through the raising of taxes long after he knew that Revenue Canada had discovered his fraudulent scheme. Notwithstanding that throughout this time he has had a substantial income, he has paid nothing and he is not in a position now to pay anything by way of restitution.

[35] The crown submits that the appropriate sentence is 3 years. Given the case law, in my view, this already discounts what would be an appropriate sentence by taking into account the mitigating factors I have listed. Since I have found that a sentence of more than 2 years is required, a conditional sentence is not open to Mr. Witen. Mr. Witen has profited by his fraudulent scheme in the amount of $448,000. This is proceeds of crime. The money has been spent. Mr. Witen states, through his lawyer, that he has no assets. The only family asset is the matrimonial home which is in the name of his wife. The money cannot be traced into an asset. I accept Mr. Markson's caution that in the absence of evidence I cannot infer that the money found its way into the purchase of the matrimonial home.

[36] The Criminal Code sections 462.37(1)(4)(a)(vi) and (b) require that I impose a fine in the amount of $448,000 and in default of payment, a minimum term of imprisonment of 3 years consecutive to any other term of imprisonment imposed on the offender. The submission of the accused that I allow him 9 years to pay and set up an annual schedule of payments in my view does not reflect the intent of Parliament in enacting this legislation as explained by Justice Deschamps in Lavigne. This would in effect give Witen an interest-free loan from the federal government for many years with no payments until one year after the imposition of the fine and lenient terms thereafter. I agree with the position of the crown. Mr. Witen is sentenced to 3 years on count 1 and to one year on count 2 to be served concurrently. He is required to pay a fine of $448,000 within 3 years of his being released. In default of payment of the fine he will be required to serve a sentence of 3 years consecutive to the other sentences.

P.B. Hambly J.

Released: June 27, 2012