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Citation: 2007TCC248
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Date: 20070522
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Docket: 2003-1705(IT)G
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BETWEEN:
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LAKIS BIROS,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowman,
C.J.
[1] These appeals are from reassessments for the
appellant’s 1994 and 1995 taxation years. The reassessments were made outside
of the “normal reassessment period” defined in paragraph 152(3.1)(b)
of the Income Tax Act (three years after the date of an original
assessment). Therefore, the Crown had the onus of establishing that the
taxpayer or person filing the return of income
(i) has made any misrepresentation that it
attributable to neglect, carelessness or wilful default or has committed any
fraud in filing the return or in supplying any information under this Act,
within the meaning of subparagraph 152(4)(a)(i).
[2] The law on the
shifting onus of proof in tax matters has evolved somewhat since the decision
in Farm Business Consultants Inc. v. The Queen, 95 DTC 200, aff’d., 96
DTC 6085 (F.C.A.).
[3] Subsection
152(4.01) of the Act was added in 1998 but it was made applicable after
April 27, 1989. It reads in part:
Notwithstanding
subsections (4) and (5), an assessment, reassessment or additional assessment
to which paragraph (4)(a) or (b) applies in respect of a taxpayer
for a taxation year may be made after the taxpayer’s normal reassessment period
in respect of the year to the extent that, but only to the extent that, it can
reasonably be regarded as relating to,
(a)
where paragraph (4)(a) applies to the assessment, reassessment or
additional assessment,
(i)
any misrepresentation made by the taxpayer or a person who filed the taxpayer’s
return of income for the year that is attributable to neglect, carelessness or
wilful default or any fraud committed by the taxpayer or that person in filing
the return or supplying any information under this Act, or
. . . . .
This provision places a limitation on the Minister of
National Revenue’s powers of reassessment. Broadly, and at the risk of
oversimplification, if a taxpayer has made a misrepresentation that is attributable
to neglect, carelessness or wilful default or has committed any fraud in filing
the return, the Minister can reassess outside the normal reassessment period
but only to the extent that the reassessment can reasonably be regarded as
relating to the misrepresentation of the type described in subparagraph 152(4.01)(a)(i).
[4] In the course of
these reasons I shall consider not only the type of restrictions placed by
subsection 152(4.01) upon the Minister in reassessing beyond the normal
reassessment period, but also the nature and extent of the onus that the
Minister has by reason of subsection 152(4.01).
[5] I shall start with
a broad overview of the case. A couple of preliminary observations are in
order. The appellant was unrepresented by counsel and his command of English is
very limited. He was assisted by a Greek interpreter. This put on the court an even
greater obligation to ensure that the appellant suffered no disadvantage by
being totally ignorant of the rules of procedure and the law, particularly the
somewhat complex provisions relating to onus of proof where the Crown has an
initial onus of establishing the Minister’s right to reopen the statute‑barred
years.
[6] The Crown’s case is
that the appellant, Mr. Biros, was involved in a massive fraud against a
number of banks, primarily the Bank of Montreal (“BMO”), but also the Canadian
Imperial Bank of Commerce (“CIBC”), the Royal Bank of Canada (“RBC”), the Bank of Nova Scotia
(“BNS”), Canada Trust and Toronto Dominion Bank (“TD”). The scheme involved
several discrete steps as follows:
(a) A
person or persons unknown would steal an innocent individual’s identity,
usually by stealing his or her wallet, including identity documents such as the
driver’s licence, health card or birth certificate.
(b) That
person would then go to the Ministry of Transportation and report a lost
driver’s licence and obtain a new one using the stolen identity documents
(other than the driver’s licence). The new licence would have the name of the
real owner but the picture of the imposter.
(c) The
imposter would then go to a bank branch and open an account using for
identification the bogus driver’s licence with the imposter’s picture and other
identity documents that did not have a picture. A nominal initial deposit would
be made and the account would be opened in the name of the person whose
identity documents were stolen. An automated teller machine (“ATM”) card would
be issued to the imposter, along with a PIN number, giving access to the automated
teller machines.
(d) Stolen
cheques, usually government cheques, would be deposited to the account with
forged endorsements.
(e) Later,
money would be withdrawn from any ATM outlet, (not necessarily the same as the one
in which the cheques were deposited). The amounts withdrawn appeared to be
relatively small and it appears that the total amounts withdrawn from any
account was less than the total amount deposited.
[7] In all, upwards of
$500,000 was fraudulently obtained in the manner described above. Detective Inspector
Thomas, an impressive witness, described the scheme in detail. He stated that
the result of the scheme was that $626,214.59 was “at risk”, by which he meant
deposited to the fraudulent bank accounts but that only $510,890.89 was in fact
withdrawn. About 500 cheques were deposited to 42 such accounts which were opened
in the names of the 10 persons whose identities were stolen as follows:
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BMO
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30
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BNS
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2
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RBC
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4
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TD
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1
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CIBC
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3
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Canada Trust
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2
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______
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Total:
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42
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[8] Detective Inspector
Thomas stated that in this case the Crown relied on only 29 accounts and the
persons in whose names the accounts were opened were the following:
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Patrick Sun
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3 BMO
1 CIBC
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Justin Wong
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4 BMO
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John Dawson
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4 BMO
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Donald Belanger
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5 BMO
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Franca Reda
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1 Canada Trust
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1 TD
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1 BNS
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1 RBC
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James McKeever
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2 BMO
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Merle McBay
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1 BMO
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Robert Vasic
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2 BMO
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Garvin Warner
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2 CIBC
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Spartaco Morassut
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1 CIBC
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[9] Indeed, the
schedule prepared by Mr. Baksh, the assessor, (Exhibit A‑41)
indicates that he assessed the appellant on amounts withdrawn from only 24
accounts.
[10] The way in which the
fraud came to light was that when the real payees reported to the Government of
Canada that they had not received their cheques (generally pension plan, social
assistance, superannuation or tax refunds) the Government of Canada refused
payment and returned the cheques to the bank. The bank reported the matter to
the police.
[11] At the time the
fraud was being investigated originally the police did not have the appellant’s
fingerprints. He was however arrested in connection with an unrelated matter
and charged with receiving stolen goods and possession of equipment for
counterfeiting credit cards. These charges were dropped, according to Detective
Inspector Thomas, and there may have been concerns that the original entry into
the appellant’s premises may have been a violation of his rights under section 8
of the Canadian Charter of Rights and Freedoms. However, when he was
arrested on those charges he was fingerprinted and this gave the police the
match with the fingerprints on the cheques they needed. He was therefore
arrested a second time and charged with fraud in connection with the bank fraud
involved in these appeals.
[12] These charges were
also dropped. According to Detective Inspector Thomas they were dropped not
because of lack of evidence but because the appellant’s preliminary hearing had
to be postponed for a year to make place for a homicide preliminary hearing and
the delay might have violated the appellant’s rights under paragraph 11(b)
of the Charter in light of the Supreme Court of Canada decision in R.
v. Askov, [1990] 2 S.C.R. 1199.
[13] The reasons given in
this court for dropping the criminal charges are of course hearsay but they are
also irrelevant to this case. Mr. Biros seems to have believed that the
withdrawal of the charges was a complete defence to the assessments that are
the subject of these appeals. They are not, of course. This court’s decision on
the civil appeals must be based on the law and on the evidence presented here.
It is independent of whether a provincial Crown attorney chooses to proceed
with or drop criminal proceedings.
[14] The documentary
evidence consisted substantially of bank records for the BMO, CIBC, RBC and BNS.
These records, including bank statements and cancelled cheques were put in
evidence by affidavit under section 30 of the Canada Evidence Act.
I am satisfied that the appropriate notice was given to Mr. Biros
under subsection 30(7).
[15] There were two main
factors that linked the appellant to the fraud. The first is that cameras on
the ATM machines took pictures of persons depositing cheques or cash or
withdrawing money from the machines. There was at that time about a four minute
discrepancy between the time shown on the picture taken and the time of the
transaction recorded by the ATM. Pictures of the appellant transacting business
at the ATM machines appear several times in the three books of Exhibits (A‑46,
A‑47 and A‑49). There are multiple pictures under seven tabs and at
least five are clearly pictures of the appellant, Mr. Biros. The pictures
under the other two tabs are probably Mr. Biros but I shall count
only the five where the images are clear. I am satisfied, based on my own
observation of the appellant in person and the pictures that these are pictures
of the appellant. Mr. Biros denies this and says it is not 100% certain
that it is he. I am not prepared, as a trier of fact, to deny the evidence of
my own eyes and I am not persuaded by Mr. Biros’ rather peculiar form of
denial. Indeed, Detective Inspector Thomas testified that he showed
Mr. Biros one of the pictures from the ATM camera and Mr. Biros
admitted that it was he. He now denies that he did so.
[16] The other link was
the fingerprints. Testimony of three highly qualified fingerprint experts, Debi
Gillespie (Klatt), Shane Scott Turnidge and Cynthia Rennie was heard. Ms.
Klatt identified Mr. Biros’ fingerprints on eleven cheques.
Mr. Turnidge identifed Mr. Biros’ fingerprints on eight cheques and
Ms. Rennie identified Mr. Biros’ fingerprints on one cheque. The
reports of three other experts were served and filed but were not put in
evidence.
[17] The system used by
the fingerprint experts was the same: the cheque would be dipped in ninhydrin
(and in one case trypsin). This would bring out the otherwise invisible (or
latent) fingerprint. This would be photographed and enlarged and compared with
the rolled fingerprint impressions of Mr. Biros. The test which seems to
be the accepted in this field of forensic science is as follows:
Identity has been
established by the continuous agreement of ridge characteristics found in
sequence with no unexplainable dissimilarities.
[18] A final somewhat
less conclusive link to the appellant is that in two or three instances, the imposter
who stole Donald Belanger’s identity gave to the Bank of Montreal as his
business address and telephone number the address and number of the appellant’s
restaurant on Yonge Street in Toronto. I do not regard this
as a particularly conclusive piece of evidence against the appellant. Whatever
else it may prove it certainly proves something about the intelligence of the
perpetrator of the fraud, the person who stole Mr. Belanger’s identity.
[19] The assessor,
Mr. Baksh assessed the appellant in the manner set out in Exhibit A-41 as
follows:
[20] The principle upon
which he proceeded was as follows. Whenever there was (a) an account to which a
cheque was deposited on which a fingerprint of Mr. Biros was identified or
(b) an account where the video surveillance camera picked up a picture of
Mr. Biros transacting business in that account at an ATM machine, Mr. Baksh
taxed in Mr. Biros’ hands all withdrawals from that account. If neither of
the two conditions set out above applied to an account that had been used in
the fraud, he did not tax Mr. Biros on any of the withdrawals from that
account. It should be noted that the experts agreed that a person
(Mr. Biros or anyone else) might have handled a cheque without a
fingerprint appearing on it. It might be objected, perhaps with some
justification, that someone else might have had access to the account and
withdrawn money from it. Since it is obvious however that Mr. Biros must
have had the ATM card some of the time, even if somebody else used it, it is
not an unreasonable hypothesis that he may have given it to that other person.
Moreover, no evidence was adduced of anyone else’s picture on the video
surveillance tapes except, in one case, a man and, in two of the others, a
woman and they were in the company of Mr. Biros.
[21] Where, then, are we?
We have evidence of a large scale fraud against the banks using stolen
identities, fraudulently opened bank accounts and fraudulently obtained ATM
cards. We have evidence of a large number of stolen cheques being deposited to
those bank accounts with forged endorsements.
[22] We have conclusive
evidence of Mr. Biros’ fingerprints on 20 cheques and clear visual
evidence of Mr. Biros transacting business in the accounts at a number of
ATMs.
[23] There is another
piece of evidence that must be handled somewhat carefully and that is
Mr. Biros’ outright and categorical denial of any involvement in the
scheme. He denies that it is his picture on the video surveillance tapes and he
suggests that the police must have somehow fabricated his fingerprints on the
cheques. His denial of the obvious and unrefuted and irrefutable evidence has
the effect of confirming and strengthening the conclusion that he was deeply
involved in the fraud. Detective Inspector Thomas stated that fraud
was a sophisticated one requiring a high degree of planning, cooperation and
organization. Mr. Biros did not strike me as a great criminal mastermind
like Dr. Moriarty or Lex Luthor. Had he admitted to a lesser
involvement in the scheme, or said that he was really a small player, I might
have found such evidence credible but to deny any involvement whatsoever in the
face of overwhelming evidence of his involvement leaves no alternative.
[24] I mentioned above
that I would have to consider the nature and extent of the Crown’s onus under
subsection 152(4.01) and the restriction that it places on the Minister’s
powers of assessment. The Minister has the onus of establishing misrepresentation
in order to open up the statute‑barred year. The standard of proof is a
civil one but it is a relatively higher standard where an allegation of fraud
is made. Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164
cited in footnote 3 on page 205 of Farm Business Consultants Inc., (supra).
[25] Here, the Crown has
proved that Mr. Biros received funds from the banks in furtherance of a
fraudulent scheme. He failed to declare these amounts as income. They are
income from a business. (Neeb v. The Queen, 97 DTC 895 at 897; Svidal
v. The Queen, [1995] 1 C.T.C. 2692). His failure to declare them was
misrepresentation. Counsel for the respondent argues that it was attributable
to an indifference and wilfulness. I think it would be disingenuous to
attribute the failure to declare income from crime to mere carelessness. It is
more likely part of the overall fraud. I might have surmised that people who
earn income from crime do not inadvertently leave it out of their income tax
returns. They mean to.
[26] Does the Crown have
to prove every dollar earned from the illegal activities in order to stay
within the restrictions in subsection 152(4.01)? This interpretation does
not strike me as a sensible one or one that conforms to the scheme of the Act
insofar as it relates to the effect of misrepresentation on statute‑barred
reassessments (cf. Canada v. Honeywell Ltd., [2007] F.C.J. No. 123 (QL)).
The evolution of the Minister’s powers to reassess statute‑barred years
seems to bear out my view that where the Crown establishes a misrepresentation
in respect of a particular head or source of income (for example, defrauding
banks) it need not prove all of the income from that source that was left out
and the onus shifts to the taxpayer to show that the income from that source
was less than that taxed by the Minister.
[27] Formerly the
Minister could open up a statute barred year for all purposes if he could find
any misrepresentation, however small. Subsection 152(5) provided some
relief but it put the onus on the taxpayers to establish that any understatement
was not attributable to the type of misrepresentation described in
paragraph 152(5)(b). Then, subsection 152(5) was amended and
subsection 152(4.01) put the onus on the Minister to establish not only that
there was misrepresentation but also that the misrepresentation was
attributable to carelessness, neglect, misrepresentation or fraud. It is a
fairly heavy onus in light of the words “to the extent that but only to the
extent that . . .” but it does not go so far as to require the Minister to establish
the precise dollar amount involved in the misrepresentation in order to justify
the amount of the reassessment.
[28] It is unfortunate
that Mr. Biros was unrepresented. What is more unfortunate is that I
received virtually no assistance from respondent’s counsel despite the Crown’s
excellent witnesses.
[29] I do not think on this
evidence that I can reduce the income assessed nor can I justify deleting the
penalties. If, as I have found, the appellant was engaged in a massive fraud
against the banks it follows ineluctably that he knowingly failed to declare
the proceeds in income.
[30] The appeals are dismissed.
In the circumstances I am not awarding the Crown its costs. If counsel wish me
to provide further reasons for my not awarding costs they may request written
reasons.
Signed at Ottawa,
Canada, this 22nd
day of May 2007.
Bowman, C.J.
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