ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CR-10-310
DATE: 20130705
B E T W E E N:
HER MAJESTY THE QUEEN
Concetta (Connie) Zary and Steven Dollar, for the Crown
- and -
NAJAM MAHMOOD
Stacey Taraniuk, for the Defence
HEARD: May 3, 6, 7 and 17, 2013
REASONS FOR SENTENCE
Lemon J.
Facts
[1] After 13 weeks of trial, a jury convicted Mr. Mahmood of eight counts of tax evasion; four counts with respect to income tax and four counts with respect to Goods and Services Tax (“GST”) over the years 2003 through 2006. It is agreed that the total income tax evaded was $358,588.24 and the GST evaded was $116,411.76 for a total tax evaded of $475,000.
[2] The evidence at trial was that Mr. Mahmood operated a business teaching foreign exchange (“Forex”) trading to novice traders. Generally speaking, he gave weekend courses for $1,000 to $5,000 and two week courses for $50,000 (U.S.). He did not collect GST from his students. He maintained records of his income but not his expenses. He did not generate any books and records. He did not file any income tax returns for the years in question although he had in past years. He failed to report income of approximately $1.5 million.
[3] Mr. Mahmood testified at trial that he was advised that he did not need to charge GST for his services; in any event, he was too busy to keep accurate expense records and thought that he was losing money in his efforts. The jury apparently rejected his testimony.
Positions of the Parties
[4] The Crown seeks a custodial sentence of three to four years plus a fine of 150 percent of the tax evaded for a total fine of $712,500.00
[5] The defence submits that Mr. Mahmood should serve an eight month conditional sentence plus pay a fine of 100 percent or $475,000.00.
[6] The Crown submits that a conditional sentence would send the wrong message to the public.
[7] Both counsel agree that I need not concern myself with Mr. Mahmood’s ability to pay or consider giving him time to pay the fine. That will be for a later hearing if necessary.
Circumstances of the Offender
[8] Mr. Mahmood was born in Karachi, Pakistan and left when he was ten. He then moved to Germany and continued his education. His family moved to Canada in 1992. He then completed grades nine through 12 in Canada. He took one year of university courses and then dropped out. He took no courses in business or administration.
[9] Over his life time, he has been employed as a janitor, a perfume salesman and a security guard. He took computer courses and became a technician and administrator in a particular computer programme. He worked for a variety of companies in that field until early 2001. He then worked for Market Traders Institute in Florida and took training courses offered by that enterprise. He was employed by Market Traders as a sales person from February to May, 2002.
[10] By late 2002, he did not have employment but believed that he had enough education and experience to teach Forex. That is what he was doing when these offences were committed.
[11] Mr. Mahmood is 36 years of age and lives with his wife, his four children, his parents and his brother. He had no criminal record at the time of his arrest.
[12] After his arrest, he was unable to return to the computer field. By his terms of release, he was unable to carry on trading or banking. He has struggled to find employment. He has been depressed and has suffered a skin condition partially as a result of the stress from the charges and trial. He is now working selling trees. He was unable to obtain a letter from his employer confirming his employment but he states that he is presently not making any money from that enterprise. Since his arrest, he and his family have been dependent on his father.
[13] Mr. Mahmood says that the period of time since his arrest has been very stressful. At times, he has not had the money to pay for his children’s medicines. He believes that his “mistakes” were not worth it. He denied that he was a cheat or a fraudster. He says that he was the “naivest and dumbest” to trust his advisers.
[14] He has complied with his terms of release.
Legal Parameters
[15] Section 239(1) and (2) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) (“ITA”) provides that every person who has wilfully attempted to evade compliance with the Act is guilty of an offence and, if prosecuted by indictment, is, in addition to any penalty otherwise provided, liable to a fine of not less than 100% and not more than 200% of the amount of the tax that was sought to be evaded and imprisonment for a term not exceeding five years.
[16] Section 327(1) and (2) of the Excise Tax Act, R.S.C., 1985, c.E-15, (“ETA”) states that every person who has wilfully evaded or attempt to evade compliance with payment or remittance of GST is guilty of an offence and in addition to any penalty otherwise provided is liable on indictment to a fine of not less than 100 percent and not more than 200 percent of the amount of tax or net tax that was sought to be evaded, or to a fine and imprisonment for a term not exceeding five years.
[17] Pursuant to s. 331 of the ETA, the court has no power to impose less than the minimum fine, or imprisonment fixed by this Part, nor the power to suspend sentence.
[18] Pursuant to s. 222 (1) of the ETA, every person who collects Goods and Services Tax is deemed, for all purposes, to hold the amount in trust for Her Majesty in right of Canada, until it is remitted to the government. A similar provision does not appear to be included in the ITA.
[19] In the often quoted paragraph from Knox Contracting Limited v. Canada 1990 71 (SCC), [1990] 2 S.C.R. 338, at p. 350:
The entire system of levying and collecting income tax is dependent upon the integrity of the tax payer in reporting and assessing income. If the system is to work, the returns must be honestly completed. All tax payers 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.
[20] In R. v. Onkar Travels Inc., 2005 36389 (ON SC), aff’d 2005 11968 (ON CA), Chapnik J. said:
34…Criminal dishonesty in this arena not only effects the public’s ability to conduct business, but it erodes public confidence in the viable administration of government. The penalty must show that “the gain is not worth the candle.” These types of crimes are committed by otherwise law abiding persons with good employment records and family ties. Arguably those very persons are the ones most likely to be deterred by the threat of severe penalties.
[21] In R v. Bhooi, (22 January 2010)(Brampton)(O.J.) Justice Hawke said:
In terms of sentencing principles, general deterrence is the primary consideration. The whole tax system depends on millions of people voluntarily complying, and I am not convinced that fines that may never be collected, the chasing down of taxes that may never be collected in any way sends the general deterrence message. I think custody does for this type of offence, and for the group of people that we are trying to send the message to, in terms of the importance of this type of offence, and how it will not be tolerated.
[22] R. v. DiPalma, [2001] O.J. No. 3586 (S.C.), aff’d 2002 53217 (ON CA), [2002] O.J. No. 2684 (C.A.), Templeton J. said:
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.
[23] The Crown and the defence have provided me with something in the excess of 30 cases. Those cases then refer to other cases with respect to the appropriate sentence in circumstances similar to these. A review of those cases shows that a number of factors are important to consider when sentencing in similar circumstances. Some of those factors are present in this case, and some are not.
[24] The Crown relies upon such cases as R. v. Bogart (2002), 2002 41073 (ON CA), 61 O.R. (3d) 75 (C.A.), leave to appeal to S.C.C. refused, [2002] S.C.C.A. No. 398, and R. v. Whitten, 2012 ONSC 4151, 102 W.C.B. (2d) 722 to support its request for a penitentiary sentence. However, those cases deal with charges of fraud for which the maximum penalty is 14 years. It is important to remember that five years is the maximum for these offences. Fraud can be a substantially different offence than what I am dealing with here.
[25] Other cases relied upon by the Crown relate to accused who were tax preparers, who not only defrauded the government through their own efforts but also assisted many others to do so. See: Whitten; R. v. Terracina, (2000), 46 W.C.B. (2d) 88 (Ont. S.C.); R. v. Porisky, 2012 BCSC 771; R. v. Leo-Mensah, 2010 ONCA 139, 101 O.R. (3d) 366, leave to appeal to S.C.C. refused, [2010] S.C.C.A. No. 170. Here, Mr. Mahmood simply hid his income by not reporting it.
[26] In some cases for which a substantial prison term was ordered, the individuals received funds from the government rather than simply failed to pay. See: R. v. Alexander Street Lofts Development Corporation Inc., 2007 ONCA 309, 86 O.R. (3d) 710, leave to appeal to S.C.C. refused, [2007] S.C.C.A. No. 378.
[27] Many cases refer to a need for general deterrence in “large scale frauds.” Of the cases referred to, those which attracted a jail sentence in the range requested by the Crown were with respect to funds well in excess of the amount evaded here – usually over one million dollars.
[28] In contrast, several cases relied upon by the defence involve guilty pleas. While Mr. Mahmood has every right to have a trial and exercising that right is not an aggravating factor, the mitigating factor of a plea is not present here.
[29] Cases of lower sentences include those which have rather sympathetic circumstances for the accused. See e.g.: R. v. Taipow (2005), 67 W.C.B. (2d) 461 (Ont. C.A.) – cardiac condition with increased risk of diabetes and depression; R. v. Grimberg (2002), 2002 10640 (ON CA), 163 C.C.C. (3d) 310 (Ont. C.A.) – 80 year old widower; R. v. Whitten - accused sole care giver for spouse with Parkinson’s disease; Onkar and R. v. Hahn [2003] O.J. No. 6155 (C.J.) – part payment of tax prior to sentence. Despite his health concerns, Mr. Mahmood’s circumstances do not rise to be a factor here. The issue of payment of the fine is not before me today.
[30] The Supreme Court of Canada has acknowledged that a conditional sentence can meet the need for general deterrence in some cases. See e.g. R. v. Proulx, 2000 SCC 5, [2000] 1 S.C.R. 61, at paras. 21-22.
[31] But where the need for general deterrence is "particularly pressing", incarceration will normally be the preferable option even where restorative goals might be achieved by a conditional sentence. See: Proulx, at para. 114.
[32] In R. v. Pierce, (1997), 32 O.R. (3d0 321 (C.A.), leave to appeal to S.C.C. refused, [1997] S.C.C.A. No. 225, the Court of Appeal also said:
This country, from coast to coast and especially the heavy populated urban areas of Southern Ontario, abounds with fraudsmen who would regard a low or a non-custodial sentence in these circumstances as an irresistible temptation to take the risk of spending a few short months in jail (a Canadian jail) in return for attempting the crime of fraud or theft where the prize exceeds $150,000. To some, such a prospect would be almost irresistible. Great care must be taken in the matter of sentence for a criminal offence such as fraud at this level of seriousness, to avoid the prospect that by over-emphasizing the principle of rehabilitation, the crime, to many, would be worth the risk of being caught. [Emphasis removed]
What the authorities make clear is that the purpose of incarcerating these offenders is not to protect the community from any danger posed by the particular offender, but to protect the community from the danger posed by those who may be inclined to engage in similar conduct. In the context of crimes of dishonesty, and particularly those involving a breach of trust, for the purposes of resolving the issue of whether "serving the sentence in the community would ... endanger the safety of the community", the risk of endangering the safety of the community must not only be measured by an assessment of the danger which the particular offender may pose if permitted to serve the sentence in the community. The risk must also be measured by an assessment of the danger which others may pose if the offender is permitted to serve the sentence in the community. The point was succinctly stated by Lamer J. sitting as a member of the Quebec Superior Court in R. v. Viger, [unreported] as cited in R. v. Cossette-Trudel (1979), 1979 2876 (QC CQ), 52 C.C.C. (2d) 352 at 360 (Q.S.P.):
There will also be a danger to the community if the sentence imposed is not of a nature to deter others from conduct analogous to that ... of the accused. [Emphasis in original.]
[33] There appears to be little analysis in the case law of the reasons for determining the correct percentage of fine to be imposed. However, in DiPalma, the Ontario Court of Appeal upheld a fine of 150% that the trial judge had determined to be fit for that offence and offender.
Mitigating and Aggravating Factors
[34] In mitigation, Mr. Mahmood had no record before these offences and has complied with his terms of release. The arrest and conviction have been hard on both him and his family.
[35] The defence submits that I should take into consideration the fact that the Crown’s case changed over the years leading up to trial and each time the amount alleged to be evaded was reduced – sometimes by hundreds of thousands of dollars. One of those changes was so significant that an earlier trial date had to be adjourned to allow the defence to prepare again to meet the case against Mr. Mahmood. There is some merit to this submission, as Mr. Mahmood invariably suffered further cost, frustration and stress as a result of the Crown’s shifting position. However, each change was to his benefit and was caused, in part, by Mr. Mahmood’s failure to keep proper records in the first place. Therefore, the cause of that cost, frustration and stress cannot all be placed at the feet of Crown.
[36] Although there are circumstances in the case law of lenient sentences for similar offences, they appear to be for exceptional mitigating circumstances. Even where there are mitigating circumstances, the case law supports the principle that general deterrence should prevail.
[37] There are no such sympathetic factors here as in many of the cases. Mr. Mahmood is not elderly; he is not taking care of an ill spouse. He has not made any repayment. There is no apparent remorse shown by Mr. Mahmood.
[38] Conversely, the aggravating factors are clear.
[39] While the amount evaded is not at the high end of the reported cases, it is still a substantial amount.
[40] The GST funds that should have been remitted were trust funds. That aggravating factor is arguably reduced by the fact that Mr. Mahmood did not take the funds from his students; however, it is still a breach of trust. While it may not be as aggravating a factor as breaches of trust by the doctors and lawyers set out in the case law provided, it is still a breach of trust.
[41] While the plan was not sophisticated, it was more than just a failure to report. Mr. Mahmood generally used cash or the credit cards of family and associates to avoid detection. I agree with the Crown that it appears that Mr. Mahmood had no intention of making a remittance. There was no evidence of taking steps to do so until late in 2006. The evidence of the steps he took then is of limited value. This was a deliberate course of action to avoid detection by the tax authorities. Of significance here are Mr. Mahmood’s personal diary entries of January 2006: “Business- What do I want? Tax free business. Everything we make, we keep.”
Discussion
[42] Without general deterrence, another tax payer may decide to do nothing and challenge the state to do what is required. A fit sentence should deter that.
[43] I have determined that the sentence in this case should be less than two years. I have considered the many cases that have fashioned a conditional sentence for such offences. I do not find that a conditional sentence would be appropriate here.
[44] This deliberate flouting of the law will not be prevented by a conditional sentence. Others may think that such a “mistake” is worth making given the price to pay if a non-custodial term is imposed.
[45] For the same reason, the fine should ensure that “the gain is not worth the candle”.
[46] I am satisfied that although this was a simple plan, it was no less a plan than others. Mr. Mahmood refused to pay his share of tax out of simple greed. He attempted to fly under the CRA’s radar in order to facilitate that. The moneys that he kept for himself were trust funds. The plan was carried out until he was caught. A custodial term will deter others from doing the same. A failure to do so would be a danger to the community.
Result
[47] In my view, taking all of those factors in to consideration, Mr. Mahmood should serve a period of 12 months in custody and pay a fine of 150 per cent of the tax evaded. The Crown has rounded the fines down, and I accept that reduction.
[48] The sentence is broken down as follows:
Count 1: s. 327 (1)(c) ETA for 2003, a fine of $5,000 plus 30 days in jail.
Count 2: s. 327 (1)(c) ETA for 2004, a fine of $29,000 plus six months in jail, concurrent.
Count 3: s. 327 (1)(c) ETA for 2005, a fine of $113,000 plus one year in jail, concurrent.
Count 4: s. 327 (1)(c) ETA for 2006, a fine of $26,000 plus six months in jail, concurrent.
Count 5: s. 239 (1)(d) ITA for 2003, a fine of $18,000 plus 30 days in jail, concurrent.
Count 6: s. 239 (1)(d) ITA for 2004, a fine of $70,000 plus six months in jail, concurrent.
Count 7: s. 239 (1)(d) ITA for 2005, a fine of $300,000 plus one year in jail, concurrent.
Count 8: s. 239 (1)(d) ITA for 2006, a fine of $126,000 plus one year in jail, concurrent.
[49] Mr. Mahmood was in custody October 2 to 14, 2008, and December 21 to 24, 2012. Accordingly, he was in custody for 17 days and on a 2:1 basis, he should receive credit of 34 days. Rounding appropriately, the end result is that the custodial term is a further period of 11 months in jail commencing today.
Lemon J.
Released: July 5, 2013
COURT FILE NO.: CR-10-310
DATE: 20130705
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
HER MAJESTY THE QUEEN
- and –
NAJAM MAHMOOD
REASONS FOR SENTENCE
Lemon J.
Released: July 5, 2013