Court File and Parties
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
HER MAJESTY THE QUEEN
– and –
JOHN (JOERN) SCHOLZ
Defendant
COUNSEL:
C. Zary for the Public Prosecution Service for Canada
J. Berkes, for the Defendant
HEARD: June 17 and 18, 2019
REASONS FOR SENTENCE
A.J. GOODMAN J.
1The accused, John (Joern) Scholz was convicted after trial with a jury of one count of defrauding the Government of Canada of income tax and GST/HST, over $5,000 pursuant to section 380(1) of the Criminal Code. Mr. Scholz was acquitted of the other two more serious counts in the indictment.
2For sentencing purposes, the quantum of the fraud against the Government of Canada is at issue. A Gardiner hearing was conducted. Both counsel provided thorough and eloquent submissions with respect to the appropriate sentence and extensive written argument was provided to the Court. At the end of submissions, the defence requested and was granted a lengthy adjournment before the imposition of sentence.
The circumstances of the offence:
3As alleged in the indictment, over the course of several years, Mr. Scholz filed certain income tax forms with the Canada Revenue Agency (“CRA”) that understated or did not report his true income or earnings for those years. In other years, he did not file any returns. Further, he failed to remit GST to the government for services rendered. Calculations from witnesses proffered by the Crown suggest that just over $1 million of income tax of GST/HST was due and owing.
Positions of the Parties:
4Both parties agree that a custodial sentence is required. They disagree as to the term of that sentence and whether it should be served in the community by way of a conditional sentence. Both counsel referred to the circumstances of this case, the aggravating and mitigating factors, the nature of the offence, and the principles of sentencing that this Court must consider in arriving at a just and proper sentence.
5The Crown seeks a jail term of three years in a federal penitentiary along with a $500,000 fine. Ms. Zary does not request a fine in lieu of forfeiture or any other ancillary orders. In support of her position, Ms. Zary submits that the nature of this fraud perpetrated over the course of years against the federal government by Mr. Scholz wilfully misleading the tax authorities in relation to his personal income tax obligations or not filing GST or HST held in trust by him warrants denunciation and deterrence.
6Mr. Berkes, on behalf of his client, submits that the appropriate sentence in this case is a term of 18 to 24 months jail to be served conditionally in the community, followed by a period of probation. Mr. Berkes also proposed various stringent terms. Counsel submits that the fine sought by the Crown is not necessary and would be overly punitive. Nonetheless, during his comments to the Court, Mr. Scholz indicated that he was willing and prepared to pay a fine.
7Mr. Berkes submits that his position reflects all of the appropriate principles of sentencing for his client and this offence. It was necessary to litigate the case as the jury eventually acquitted his client of the more serious counts.
Case law:
8I have been provided with cases from both counsel on the issue of the appropriate sentence to be imposed although the law is clear that each case turns on its own specific facts. Many of the cases are dissimilar based on their facts or the circumstances of the offender.
9In R. v. Williams, 2007 CanLII 13949 (ON SC), [2007] O.J. No. 1604 (S.C.) at paras 30-32 and R. v. Atwal, 2016 ONSC 3668 at paras. 43 - 46, 51, Hill J., enumerated aggravating and mitigating factors in these types of cases. These include the nature and extent of the loss; the dishonest attainment of public monies (which is a serious crime with its own effects even though the institution, on its face, seems able to bear the loss); the degree of sophistication of the dishonesty and the degree of planning, skill and deception; whether the sole motivation is greed; a lengthy period of dishonesty; the number of dishonest transactions undertaken in the commission of the offence; hope of restitution; the offender was caught as opposed to voluntary termination of the criminality; running the risk that others would fall under suspicion; and the impact on victims of the fraud including members of the public. Additional factors include if there is a breach of trust including the quality and degree of trust reposed in the offender; whether concerted efforts were made to conceal the frauds; in addition to the usual factors mitigating sentence, such as first offender status, a plea of guilt, cooperation and assistance with the authorities; impact of incarceration on a third party; impact upon the reputation or life of the offender due to the stigma of the offence; substantial recovery of the proceeds of the dishonest conduct; and other circumstances that serve to ameliorate the harshness of the disposition to be imposed.
10With those factors in mind for “large scale” frauds, significant penitentiary terms of 2 to 6 years have been imposed: R. v. Dobis, 2002 CanLII 32815 (ON CA), [2002] O.J. No. 646; R. v. Bertram, [1990] O.J. No. 2013 (C.A.); R. v. D'Andrea, [2004] O.J. No. 2330 (C.A.); R. v. Khan, 2002 BCCA 703; R. v. Pouchkina, 2016 ONCJ 384; R. v. Diekmann, 2014 ONSC 717.
11In R. v. Henderson, [2007] O.J. No. 917 (C.A.), after trial, an auditor of Revenue Canada received 18 months in jail. The case was described by the Court of Appeal as "... undoubtedly at the extremely low end of the range for this type of offence" although the amounts involved were $1.5 million. The offender fraudulently established farm accounts to take advantage of the fact farmers did not pay GST on purchases related to their farms.
12In R. v. Pastore, [2017] O.J. No. 3025 (C.A.) the offender unsuccessfully appealed a 15-month jail sentence. The offender exploited the Canada Small Business Financing Program using a number of deceitful documents to obtain loans for his own false businesses. On the strength of his fraudulent representations over a $1 million in loans was advanced. The loss to the government agency was over $400,000. No restitution was made. Although the offender pleaded guilty and had no criminal record, the aggravating factors were overwhelming. This included the level of sophistication, the offences were committed over a three-year period, there were eight discrete fraudulent plans and the main victim was the Government of Canada.
13In R. v. Coffin, 2006 QCCA 471, the Quebec Court of Appeal allowed the Crown's appeal of a 2-year less a day conditional sentence and substituted an 18-month period of imprisonment. The offender was 62 years old and without a prior criminal record. He had pleaded guilty to 15 counts of fraud against the Government of Canada. The loss to the Government of Canada was approximately $1,556,625. Of that amount, Mr. Coffin had reimbursed roughly $1 million.
14In R. v. Plange, 2018 ONSC 1657, the offender plead guilty to one count of fraud, with amounts exceeding $1 million. The offender submitted 28 RC366 forms to the CRA in order to change the direct deposit information for the accounts of 12 corporations. The sentencing judge determined that the fraud was not sophisticated or well-planned. The offender had several mitigating factors, a plea of guilt, first time offender, support of family, socio-economic difficulties, and the offender made full restitution to the CRA, despite having limited financial means. The offender demonstrated remorse and acceptance of responsibility. The judge found that there was a strong prospect of rehabilitation. Despite all of those factors, and given the amount of the fraud, he was sentenced to 18 months jail less credit for strict bail conditions.
15While this is not a tax evasion case, I observe that custodial sentences appear to be the norm: R. v. Bogart, 2002 CanLII 41073 (ON CA), [2002] O.J. No. 3039 (C.A.), (leave refused [2002] SCCA No. 398), where the Court of Appeal overturned a conditional sentence disposition and opined that general deterrence was “particularly pressing” and that incarceration will normally be the preferred option: at para. 33. In R. v. Mahmood, 2016 ONCA 75, a case of tax evasion over a four-year period that resulted in $358,588 of income tax evaded and $116,412 of GST not remitted, the offender was sentenced to 12 months imprisonment with a fine of 150% of tax evaded. The Crown argued on appeal that a penitentiary sentence was required, but the Court of Appeal found that the 12-month sentence was not "manifestly unfit".
16In R. v. Wang, 2015 BCPC 302 aff’d. 2016 BCCA 390, the offender ran an immigration fraud scheme. He failed to report his income for five years and evaded $730,837 in income taxes. The trial court identified the range of sentence as 2 years less 1 day to 3 years. The two-year sentence was upheld on appeal.
17In R. v. Witen, 2012 ONSC 4151 aff’d. 2014 ONCA 694, (leave refused [2015 SCCA No. 287), an accountant tax preparer ran a scheme which resulted in false returns for himself and his clients over nine years. There was $1.13 million total evaded from which Mr. Witen made $448,000 in profit. The sentence after trial was three years imprisonment with a fine in lieu of forfeiture imposed. The Court of Appeal agreed that a penitentiary sentence was required.
18In R. v. Leo-Mensah, 2010 ONCA 139, a tax preparer filed false returns for others, failed to report income, evaded tax of $145,766 and failed to file a return for the 2006 tax year. The sentence imposed after guilty plea was varied by the Court of Appeal to two years imprisonment with a 100% fine.
19In R. v. Alexander Street Lofts, 2007 ONCA 309 (leave refused [2007 SCCA No. 378), was a case of fraudulent GST rebates totalling $671,279, resulted in 30 months imprisonment with a 100% fine. Similarly, in R. v. Valley Heavy Equipment Inc., 2005 BCPC 32, fourteen false GST returns were filed resulting in a profit of $500,000. After being found guilty, the sentence was two years and six months imprisonment along with a fine.
20It seems from the jurisprudence that in tax evasion cases and where conditional sentences are imposed, there are typically lower amounts involved and the relevant acts are for short durations. For example, a conditional sentence of 16 months was imposed on joint submission in the case of R. v. Freake, 2003 NLSCTD 35, where the offender had participated in tax evasion as a tax preparer for multiple clients with little financial gain for himself. He was retired, unemployed and impoverished. The tax evaded was $129,203 and the joint submission included a fine for 100% of that amount.
21While the aforementioned cases are informative, I pause again to state the obvious. This was not a prosecution for tax evasion.
22That is not to say that when conditional sentences were available for this offence, various courts imposed upper reformatory range sentences for large scale frauds.
23In R. v. Underys, [1999] O.J. No. 4372, the Court of Appeal endorsed an 18-month conditional sentence for a credit union manager who stole more than $1 million. In R. v. Abedi, 2012 ONCJ 540, the court imposed a conditional sentence of two years less a day for a large-scale organized fraud on the Business Development Bank of Canada where the loss was $14 million.
24In R. v. Loewen, [2002] M.J. No. 298, a conditional sentence of 2 years less a day was imposed for a bank fraud of $1.5 million dollars. In the case of R. v. Tulloch, [2002] O.J. No. 5446 (S.C.), a conditional sentence of two years less a day was rendered for convictions for conspiracy to defraud the government of $6.2 million.
25In R. v. Amery, [2005] A.J. No. 1947, the offender under-reported income for four tax years to a total of $1.36 million. On a guilty plea with a joint submission, he was given a 12-month conditional sentence plus a fine of 100% of the tax evaded. The plea was significant, as there were evidentiary issues with the Crown's case. His culpability was limited to wilful blindness and he was fully cooperative with the CRA. Prior to sentence he had provided a substantial portion of the fine to be paid to the court.
26Given the timeframe of the incidents, a conditional sentence is statutorily available pursuant to s. 742.1 of the Code. It seems that where conditional sentences have been imposed in major-scale fraud cases, there have been exceptional circumstances. In the case of R. v. Klundert, 2011 ONCA 646, a conditional sentence of 12 months and 150% fine was imposed for evasion of $1.4 million over the course of five years. At para. 33, the Court of Appeal stressed that it was a "unique case" in which there was a low level of deceit or fraud on the part of the accused. In addition, the matter was protracted with three trials, two prior acquittals and two prior Court of Appeal decisions.
27Turning to some of the GST cases, in R. v. Grimberg, 2002 CanLII 10640 (ON CA), [2002] O.J. No. 526, the Court of Appeal upheld a case of an 80-year-old man who plead guilty and received a 12-month conditional sentence with a 100% fine imposed for failure to remit $617,940 in GST. In R. v. Finch, 2001 ABCA 223, the offender was convicted of evading approximately $300,000 in excise duties, GST and taxes. A term of two years jail was reduced to a 12-month conditional sentence on appeal, given the accused's low level of participation in the scheme, the fact that he lost his job and pension, his family had serious medical issues and they depended upon him financially.
28A careful review of these cases to the extent I can find similarities to the case before me, does assist me in determining what an appropriate range is for the sentence to be imposed. I must take into account the particular circumstances of each case and the individual circumstances of the offender in order to discharge my function as a sentencing judge. Indeed, it is an individualized process.
Analysis:
29This Court, or any court, is guided by the principles of sentencing as set out in s. 718 to s. 718.2 of the Criminal Code. As directed by s. 718 of the Criminal Code, the fundamental purpose of sentencing is to contribute to respect for the law and the maintenance of a peaceful, and safe society by imposing just sanctions that reflect enumerated objectives. It is important to impose a sentence that promotes a sense of responsibility in offenders, and an acknowledgment of the harm done to victims and to the community. The sentence must be proportionate to the gravity of the offence and the degree of the responsibility of the offender. The circumstances of the offence and of the offender must be analyzed.
30The objectives relevant to this case are a denunciation of the unlawful conduct, deterrence of other potential offenders, and rehabilitation of Mr. Scholz.
31Section 718.2 addresses the principles of totality, parity, and the principle of restraint among other factors. Section 718.2 also addresses specific aggravating and mitigating factors that shall be taken into consideration based on those enumerated principles. However, I have not neglected to consider all of the other principles listed in s. 718 and that part of the sentencing regime of the Criminal Code including rehabilitation in this case.
32In particular, I must also consider the principles as set out in ss. 380.1, and 380.1 (3) of the Code. The section sets out some of the aggravating factors, for example, the magnitude, complexity, duration or degree of planning of the fraud; the number of victims and the impact on them; whether the offender breached a professional standard or tried to conceal or destroy records of the fraud; and whether the offence adversely affected the economy or financial system.
33While this case is one of fraud, Cory J.’s statement in Knox Contracting Ltd v. Canada, 2 S.C.R. 338, at paras. 17-18, is instructive:
… 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.
34The entire system of levying and collecting income tax is dependent upon the integrity and honesty of the taxpayer in reporting and assessing income. It is premised on an honour system. All taxpayers have the right to know that they will be subject to penal or regulatory penalties for non-compliance or fraudulent misrepresentations. Persons like Mr. Scholz who choose to defraud the government of taxes not only cheat the state of much needed revenue, but they increase the tax burden on others.
35As mentioned by Crown counsel, the aggravating factors include the nature of the offence, and the accused’s role over the course of years to commit the fraud, along with his professional accounting designation.
36Another aggravating factor is the notion of a breach of trust in relation to failing to remit GST collected by him on behalf of the government.
37Indeed, while this occurrence cannot be described as a sophisticated fraud, its simplicity and ease of accomplishment was exacerbated by the fact that the accused is a Chartered Accountant. Unlike other reported cases, Mr. Scholz’ liability rests with his own personal income tax obligations. Mr. Scholz is a sophisticated professional who failed to deal with his own and corporate taxes. Given his business acumen and expertise he was well aware of the need to keep proper records and file accurate tax returns. That being said, I do not find that he hid proper business records or that there was significant planning and deceit.
38Greed appears to be the sole motivation for this offence. Mr. Scholz’ explanations do not belie this finding. He had the financial means to satisfy his tax obligations, but he deliberately chose not to do so. During the three years at issue, Mr. Scholz defrauded the public of a significant amount of money in taxes.
What is the quantum for purposes of s. 380.1 (1.1)?
39An important consideration in this case is whether s. 380.1 (1.1.) applies. The Crown seeks to have the Court conclude that this fraud exceeded $1 million, and as such, is a statutorily aggravating factor.
40It is trite law that at a sentencing hearing, the burden is on the Crown to prove aggravating factors beyond a reasonable doubt. Thus, the defence must simply raise a reasonable doubt that the quantum of the fraud does not exceed $1 million. The defence does not have to establish a specific or set amount.
41Based on the evidence at trial and supplemented by affidavits, including that of Sophie Pombert dated June 10, 2019, with the charts adduced in Exhibit 57 and during this sentencing hearing, the Crown alleges that the amount of income taxes evaded is $605,355. The Crown claims the GST/HST that should have been paid is $445,789.30. The total for both amounts is just over $1 million; specifically, $1,051,144.30.
42According to Ms. Pombert, this figure is based on Mr. Scholz earning 15% of the RRSP’s of at least $22.6 million, translating into a gross income of $3.6 million. From those amounts, Ms. Pombert deducted legitimate business expenses from the banking records or seized documents that she could find from the “clearest of information”. She made efforts to ensure that there was no “double counting”.
43The Crown also sought to include the income taxes owing of $352,507 based on a taxable income of $1,254,691.42 for the years 2014 and 2015 as an aggravating factor, (Exhibit 57). When Mr. Scholz filed his returns for 2013 to 2015, Ms. Pombert affirmed that he reported $187,000 more income than she had originally calculated. Notices of assessments have been rendered.
44During submissions, I advised the Crown that I was disinclined to consider any amounts and taxes owing alleged for 2014 and 2015. Mr. Scholz was not charged with any fraud offences for those years, despite the fact that he had filed late returns for 2014 and 2015. For greater certainty, given the unfolding of this trial, in my view, it would be unfair to now include those additional years at this stage of the proceedings as an aggravating factor for sentencing.
45In response to the Crown’s assertions, the defence does not take any issue with the GST/HST quantum alleged by the Crown. However, Mr. Berkes submits that for a plethora of miscalculations by Ms. Pombert and other CRA witnesses, if the amount of income attributable to Mr. Scholz in dispute is reduced by as little as 4.8%, the total owing would be under $1 million. Mr. Berkes submits that the calculations advanced by the prosecution witness’ that implicate Mr. Scholz’ true income for tax purposes have failed to fully take into account the various sources of funds and legitimate business or other deductions in establishing his client’s taxable income.
46For example, income attributed to Mr. Scholz but not properly deducted include monies paid by the corporation to Jeff Singh and claimed by Mr. Singh on his income taxes. Mr. Singh testified that he was director of Red Hill Capital. Singh testified he received monies for being a director. Monies were paid out of the Western Pacific Trust Company (“WPTC”) self-directed RRSP’s to his benefit.
47As another example, the defence submits that amounts wrongly attributable to Mr. Scholz are monies transferred to Anita Insanalli from another corporation, “NESI”. There was evidence of several witnesses that Ms. Insanalli was a director of Northland Capital. The Crown materials on sentence (Tab 1 p. 4) illustrate monies she received in 2011, 2012 and 2013. Monies were paid out of the WPTC self-directed RRSP to her. These amounts ought to reflect that funds paid to her would reduce the income attributable to Mr. Scholz.
48Loan holdbacks should not be counted as income as they must be repaid. For example, those referring to Michelle Spencer and Cynthia Habib.
49The Crown presented charts, spreadsheets and cogent evidence during the trial and at this hearing. I attempted to conduct a detailed exercise of reviewing and parcelling out the transactions and sourcing the flow of funds from the various corporations to investors and other individuals, along with the list of deductions as illustrated by the witnesses in their respective charts and affidavits. This exercise was intended to determine from the evidence whether monies were properly attributable to Mr. Scholz as reportable income only for the purpose of s. 380.1 (1.1). I confess that this was a daunting and challenging exercise.
50Overall, I am persuaded that the magnitude of this fraud regarding income taxes evaded was significant. It involved a complicated series of transactions from an accounting perspective, as there were many corporations or entities implicated along with other unrelated individuals who appeared to have benefitted, not to mention some of the convoluted transactions regarding the RRSP’s, Western Pacific Trust Company, and a host of suspicious payments. That being said, the amount of the fraud against the Government of Canada may be close to the total amounts proffered by the Crown.
51However, based on my review and for the eloquent submissions advanced by Mr. Berkes, I am left with a reasonable doubt as to whether the total amount of the fraud, that is income tax attributable to Mr. Scholz, is over $1 million. Thus, I am persuaded that the statutory aggravating factors pursuant to s. 380.1 (1.1) are not engaged in this case.
Discussion:
52The aggravating factors include the nature and extent of the fraud perpetrated against the government by failing to remit income tax or providing misleading information to the tax authorities. That being said, this was not a complex fraud, there was no significant planning, no attempt to destroy records or to conceal the transactions. Mr. Scholz did not use his employment, skills status or reputation in the community to commit the fraud.
53Turning to the mitigating factors, Mr. Scholz is a first-time offender. He has no criminal antecedents. As the social worker's letter denotes, Mr. Scholz' behaviour was not driven by addiction or compulsion. He does not suffer from a major mental illness. There is no further factor that would present a bar to his rehabilitation. He has continued prospects for employment, albeit he will lose his professional designation. He has positive prospects for rehabilitation.
54Mr. Scholz enjoys the support of his family. He is the primary breadwinner for his family.
55I am able to consider and weigh the collateral consequences for sentencing purposes: R. v. Pham, 2013 SCC 15, [2013] SCJ No. 100 at paras. 11 and 12. Mr. Scholz will certainly lose his professional licence and his designation as a chartered accountant. Although Mr. Scholz may be able to perform bookkeeping duties, he will not be able to engage as a Chartered Accountant. By letter faxed to the Director, Standards Enforcement on August 15, 2019, Mr. Scholz has fully cooperated with the governing body for his profession and has written to the compliance officer advising that he has resigned and surrendered his license, giving up his right to a hearing. His financial wherewithal and ability to earn a living will be adversely impacted.
56By letters dated April 30, 2019, the CRA has served audit notices to Mr. Scholz with respect to the following: Notice of Audit for personal income taxes 2011 – 2017. Notice of Audit for Northland Executive Services Inc. 2015 – 2017. Notice of Audit for Northland Capital Inc. 2010 - 2017 and Notice of Audit for Wellington Finance Inc. 2014 – 2017. The CRA can and will likely engage all collection mechanisms at their disposal.
57Administrative penalties may result but that is another entire process at the disposal of the CRA. Jurisprudence suggests that this fact play little or no role in the overall sentence to be imposed. This information provided by Mr. Scholz can only be considered as a neutral factor for sentencing purposes.
58I accept the defence argument that in this case a plea would not have been possible. The matter had to be litigated. I accept that the defence attempted at every point in the process to minimize delay and resources required for the case. For example, the defence conceded committal at preliminary inquiry; agreed to preliminary inquiry as a judge alone process; did not contest continuity of exhibits and agreed to admissibility without proving foundation. Counsel did not engage in lengthy cross-examination on documents and minimized any delay due to late disclosure, specifically the late-breaking expert report along with emails from Wayne Vanderlaan.
59Mr. Scholz is otherwise a person of good character. The Crown submits that evidence of good character is less important in tax cases relying on R. v. Bertram [1990] O.J. No. 2013 (C.A). The brief reasons in Bertram indicate that rehabilitation is often not a concern in these cases as the accused persons tend to be first time offenders. It is also true that the fact that Mr. Scholz is otherwise of good character does not distinguish him from other similar offenders who have received significant sentences. Although that does not mean that an accused's prior good character is not relevant to sentence: Klundert at para. 29.
60In this unique case, I am persuaded that Mr. Scholz’ good character is a mitigating factor. This quality is also supported by the dozens of “victims” who were called to testify by the prosecution to address the more significant counts of alleged fraud at trial.
61Mr. Scholz’ expression of remorse at the time of sentence is noteworthy. The accused's excuses minimize the nature of the fraud, but the expression of remorse is entitled to some weight.
62It is true that Mr. Scholz had pleaded not guilty. He is not entitled to the mitigation of a guilty plea. At the end of the day, after a hard-fought trial, the jury acquitted Mr. Scholz of the two most serious fraud counts in the indictment. While the trial continued for several weeks, it was clearly a focused trial, due to the diligent efforts of the defence. The Crown was not put to the strict proof of every document or fact.
63A Pre-sentence Report was prepared by Joanna Seidel, a private social worker hired by the accused.
64Mr. Scholz’ background was thoroughly canvassed in the report. Overall, it is a positive report. Ms. Scholz’ focus appears to be on his immediate family, whereby he provides them with significant support. No issues of mental illness or substance abuse were noted. Mr. Scholz expressed regret and remorse for what had transpired. He is committed to learning from his mistakes. Not to excuse his actions, he reports that he was going through an extremely difficult time.
65The Report from Joanna Seidel indicates that he is unlikely to reoffend. Mr. Scholz looks inward due to unresolved childhood trauma, rehabilitation would be assisted with counselling and Ms. Seidel is willing to continue as counselor. Ms. Insanalli corroborates the significant role Mr. Scholz plays as a caregiver and the negative impact incarceration would have on the family. In Ms. Seidel’s view, Mr. Scholz has some insight into his underlying behaviours.
66Mr. Scholz has respected the terms of his bail and no breaches have been registered. This is a first offence so there is no prior involvement in the criminal justice system to indicate a pattern of behaviour. Ms. Seidel indicates that given Mr. Scholz’ shame and remorse, he is unlikely to engage in further risky behaviour.
67Indeed, some lifestyle choices, greed and avarice were at play here. However, I agree with counsel that Mr. Scholz has the willingness and some ability to repay any amounts towards his obligations to the government.
68As mentioned, Mr. Scholz has been served with audit notices from the CRA. Prior to the return date for sentencing, Mr. Berkes provided updated materials to the Court by letter dated September 11, 2019. Included in such materials is information that counsel was provided with funds from Mr. Scholz. Mr. Berkes now holds $100,000 in trust for his client.
69I accept that the accused’s reputation in the community professionally and otherwise is all but non-existent. That said, most interestingly, he has the overwhelming support of the many Crown witness, who - almost without fail - endorsed Mr. Scholz as trustworthy, reliable and not deceitful. I am reminded by counsel that this is a very unique circumstance, in which potential victims do not display or hold any animosity to the offender. In fact, quite the contrary. Even with such support of the many complainants in relation to the other counts at trial, there is a negative effect on his professional reputation with negative publicity.
70I also accept Mr. Berkes’ comments in relation to the manner in which the principal investigator for the Ontario Securities Commission (“OSC”) discharged his duties and how he treated the accused.
71In my view, the evidence at trial demonstrated that the lead investigator was heavy-handed. During the course of the trial it was revealed that the investigator was not entirely forthright in his Information to Obtain (“ITO”), in relation to the information he received from Gilles Lalonde. Mr. Lalonde never confirmed that this was a RRSP strip, per se; in fact, he told Mr. Vanderlaan exactly the opposite. The investigator did not make any notes of this conversation to ensure that there was nothing to contradict what he put in his affidavit. There may be a valid argument as to a failure to disclose evidence. The November 24, 2016 letter from Mr. Lalonde to Mr. Vanderlaan directly contradicted what was in the ITO. However, Mr. Vanderlaan did not appear to have even mentioned it or disclosed it to the Crown.
72I will not go as far as to suggest that Mr. Vanderlaan misled the court when testifying under oath consistent with what he originally put in his affidavit, any reference to the Lalonde letter is wanting.
73Mr. Vanderlaan also denied interfering with or on behalf of Cynthia Habib when it appears that he did so. It seems to me that Mr. Vanderlaan appeared to have engaged in a concerted effort to impress or otherwise influence witness’ testimony in this matter. Several witnesses testified about the investigator’s behaviour which ranged from aggressive questioning, to disparaging Mr. Scholz, to veiled intimidation of witnesses in order to obtain their cooperation. This was corroborated by several different witnesses who did not know each other. For example, Alison Alfer and Steve Youngman, both from WPTC, spoke of Mr. Vanderlaan’s tunnel vision and the transcripts of their interview showed his aggressive or suggestive questioning. Michelle Spencer and Tibor Kadet spoke of him clearly disparaging Mr. Scholz. The Palantzas testified as to his aggressiveness towards them and his disparagement of Mr. Scholz. Jeff Singh testified how Mr. Vanderlaan outwardly threatened him with prosecution unless he cooperated.
74In R. v. Nasogaluak, [2010] 1 SCR 206, 2010 SCC 6, the Supreme Court of Canada stated at paras. 53 and 55:
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. In Pigeon, the court did not need to determine whether the accused's s. 7 rights had been violated, as there was sufficient scope within the regular sentencing process to address the impropriety of the police officers' actions. Likewise, the Ontario Court of Appeal held in R. v. Bosley (1992), 1992 CanLII 2838 (ON CA), 18 C.R. (4th) 347, that the trial judge had properly considered excessive but not unconstitutional delay as a mitigating factor in his determination of a fit sentence (see also R. v. Leaver (1996), 1996 CanLII 10223 (ON CA), 3 C.R. (5th) 138 (Ont. C.A.)).
Thus, a sentencing judge may take into account police violence or other state misconduct while crafting a fit and proportionate sentence, without requiring the offender to prove that the incidents complained of amount to a Charter breach. Provided the interests at stake can properly be considered by the court while acting within the sentencing regime in the Criminal Code, there is simply no need to turn to the Charter for a remedy.
75I need not say more about this conduct except that I am persuaded that it should play a collateral role in mitigation.
76At the end of this analysis, these and other factors support the notion that the defence had to proceed to trial. While not rising to the level of a Charter violation, it is painfully obvious to me that this litigation was necessary and the acquittals by the jury on the most serious counts in the indictment bear this out.
77Finally, Ms. Zary argues that even if a reformatory term of imprisonment is determined to be the appropriate disposition, the Crown is vigorously opposed to the imposition of a conditional sentence. To that end, Ms. Zary provided numerous cases to support her position. This includes cases of large-scale frauds already referred to in these reasons such as Bogart and Witen.
78For the most part, this is not a situation where Mr. Scholz committed the tax fraud as a breach of trust or in his professional capacity; unlike the case of R. v. DiGiuseppe, 2008 ONCJ 127, [2008] O.J. No. 1107, (C.J.) aff’d 2010 ONCA 91, where the offender was sentenced to six years in jail for a $3.5 million fraud. DiGiuseppe caused his companies to underreport income and deliberately destroying records to avoid compliance. It is also unlike the case of Witen, where the offender failed to pay taxes not only for himself but on behalf of his numerous clients, or the case of R. v. Watts, 2016 ONSC 4843 where the offender prepared returns for 241 taxpayers in which there were non-existent business losses and a serious breach of trust. Watts was sentenced to six years with a fine in lieu of forfeiture.
79It is also dissimilar to the cases of R. v. Mathur, 2017 ONCA 403 where the offender used confidential personal information of his real estate clients and prepared 292 false tax returns from fictious companies. Similarly, in the case of R. v. Wiafe, 2018 ONCA 1045, whereas the offender made false statements on behalf of his corporation and falsified documentation to the CRA to support his illegitimate GST claims. In Wiafe, the offender had a prior related conviction.
80The case of R. v. Boghossian, 2017 ONCA 870 is also distinguishable as the offender was a lawyer who, in his role qua lawyer, defrauded TD Bank of $1.9 million; as is the matter of R. v. Sharma, 2018 ABPC 288 where the accused held himself out to be a reputable tax preparer and filed numerous false claims without his clients’ knowledge.
81It is true that the failure to remit GST related to Mr. Scholz’ professional services. While not condoning Mr. Scholz’ conduct in failing to report his taxable income to the CRA or by failing to remit GST, I find that the aforementioned cases referred to by the Crown are factually distinguishable and they tended to invoke a higher degree of moral and legal culpability.
Disposition:
82In my view, the principle of specific deterrence is paramount while general deterrence and denunciation can be achieved by the sentence I will impose. I have not lost sight of the important sentencing principle of rehabilitation.
83Both counsels’ positions are within the appropriate range of sentence. It is worth repeating that this is not a tax evasion case.
84The Criminal Code amendments with respect to the unavailability of conditional sentences came into force on November 19, 2012. Notwithstanding that some courts have struck down the mandatory minimum sentence for s. 380.1 offences, in this case, the dates in the indictment straddle or overlap the amendments to the Criminal Code, which enable this count of fraud over $5,000 eligible for a conditional sentence.
85Upon due consideration of all of the factors, including the circumstances of the offence and of the offender with consideration of the principles of restraint and proportionality; in my opinion, Mr Berkes’ submissions do adequately address the sentencing objectives as found in ss. 718.2 and 380.1 of the Code.
86It is trite law that a conditional sentence can include restrictive and punitive elements. In this case, I am persuaded that this form of sentence would provide the requisite deterrent elements. Such a disposition is in the best interests of the offender and is in the public interest. A conditional sentence along with a financial penalty would be adequate to specifically deter Mr. Scholz. This form of sentence would allow the offender to obtain or continue employment, pay the fine and potential tax administrative penalties while remaining under supervision. The unavailability of a conditional sentence for prospective offenders means that its general deterrent application is all but moot.
87With respect to the one count of fraud over $5,000, Mr. Scholz is hereby sentenced to a jail term of two years less a day, to be served conditionally in the community.
88Aside from the statutory conditions, there will be other terms that will be provided to the parties. Suffice it to state that the first 12 months of the conditional sentence will be 24/7 house arrest, with certain exceptions to be detailed momentarily; the remaining 12 months less one day will be under a curfew, from 10:00 p.m. to 6:00 a.m.
89While I acknowledge the real potential for additional significant administrative financial penalties and interest, in my view, given the circumstances of the case and the prevailing jurisprudence, I accede to the Crown’s request for a fine.
90I order that Mr. Scholz pay a fine fixed in the amount of $445,789.30. This represents the entire amount of GST/HST not disputed by Mr. Scholz. The Crown may address me as to the appropriate time to pay. Mr. Scholz has provided $100,000 to his counsel in trust. This sum of money shall be forfeited to Her Majesty the Queen and will serve to satisfy a portion of the fine imposed. A victim surcharge is levied.
Justice A.J. Goodman
Released: September 26, 2019