Her Majesty the Queen v. Roger E. Lawrence, Michael L. Vaz, Michael B. Richards, Victor J. Attrill, Ronald L. Johnson, Dara M. Wilder, Gerald M. Byerlay, Seona J. Wilder and Mid-Pacific Services Inc., [1994] 2 CTC 240

Wong J (orally):—The four of you have been found guilty by a jury of perpetrating five counts of income tax fraud on the Federal Government amounting to almost 17 and a half million dollars arising out of two purported scientific research projects financed by the sale of income tax credits.

The fraudulent schemes were conducted under the short-lived scientific research tax credit plan of the Federal Government in late 1983. The program was designed to stimulate new technology research and development in Canada but lasted for only ten months before it was withdrawn by the Government as being unsatisfactory in terms of implementing actual research.

The fraudulent scheme was elaborate. It involved creation of the beginnings of a research infrastructure by expenditure of initial seed money, attraction of investment money from third party sources through the sale of income tax credit certificates, creation of an escrow arrangement to hold potential tax liability funds in the event research obligations were not incurred, use of inflated and bogus equipment acquisition invoices together with bogus promissory notes, and, finally, false representations to secure release of the escrow funds. The research projects were then abruptly abandoned and the research monies were then divided and pocketed amongst the main players.

The scheme involved the expenditure of a great deal of thought, preparation, skill, and determination. It incorporated the use of legal, accounting, and business knowledge skills of the various accused. Because of your professional standing and ostensible impression as responsible, upstanding members of the community, the fraud was facilitated.

The enormity and scale of this fraud of public funds was morally monstrous. Capitalizing on the fact that the income tax system relies primarily on voluntary compliance, you also took advantage of that trust to syphon the public purse. Public confidence with respect to continued voluntary conformity to our income tax system and expectation that the law will deal severely with those who abuse that trust must be upheld.

Even though all of you have previous unblemished backgrounds, an exemplary, denunciatory custodial sentence with a major, general deterrent component must be imposed. Rehabilitation is not a concern here and, in any event, must be secondary in this case to the principle of general deterrence. Specific deterrence in light of the fact that these offences were discovered and the ruinous effect that fraud convictions will have as to your future professional careers and business activities need not be emphasized. The length of the sentence, applying these principles, must then be proportionate to the gravity of the offence and its circumstance and commensurate to the extent of each individual’s culpability.

From the evidence, I am satisfied that Messrs. Lawrence, Richards, and Johnson were some of the main players in concocting and perpetrating this elaborate fraud. There is little to distinguish the extent of their respective culpabilities.

Mr. Byerlay appears to be a minor player who, for perhaps $70,000, was prepared to lend his technical credentials in order to advance the credibility of this fraudulent scheme. The extent of his culpability is clearly considerably less than that of the other accused.

Even though all of the accused are first time criminal offenders at middle and mature ages, a deterrent custodial sentence is inescapable. The maximum penalty provided under the Criminal Code for fraud is ten years' imprisonment.

I propose to approach the imposition of sentence on a global base of totality. Each count, basically, was a series of repeated representations of the same fraud.

From a review of the sentencing authorities both in this province and in other parts of Canada, a sentencing range for frauds of this magnitude under the Criminal Code, depending upon the circumstances and involvement, is somewhere between four to nine years’ imprisonment. The circumstances of this case warrant a custodial sentence towards the high end of this range for the main players. I have also been referred to British Columbia cases in which custodial sentences have been below this range: See The Queen v. Bio-Terra Products Ltd., et al, unreported, case number CC891584 in the Vancouver Registry, an unreported decision rendered on December 14, 1990, a decision of this Court and the decision of The Queen v. Zink, Court of Appeal Registry number 014179, unreported, May 15, 1992. That is a decision of the British Columbia Court of Appeal.

1 distinguish those cases on the basis that those prosecutions were under the tax evasion provisions of the Income Tax Act for which the maximum custodial penalty is limited to one half of that provided by the Criminal Code for fraud, and the Crown chose not to cross-appeal the lesser sentence imposed in the Zink case.

It was properly conceded by the Crown that Mr. Byerlay's lesser involvement warrants a lesser custodial sentence of provincial time. In arriving at the duration, I have also given consideration to Mr. Byerlay’s age, his health, and the health needs of his dependent wife. The Crown also requested, in addition, the imposition of a $20,000 fine on Mr. Byerlay. I have given consideration to that request, but after taking into account Mr. Byerlay’s age of 65 years, his limited fixed income, and relatively modest financial means, I have concluded that an additional financial penalty is inappropriate.

Messrs. Lawrence and Johnson were also convicted on Count 9 of possession of proceeds of crime, namely, the funds obtained fraudulently and then deposited in their various bank accounts. Since a substantial custodial sentence will be imposed on the fraud convictions, I think a totality approach of a reasonable, aggregate sentence limits imposition of substantial additional custodial time on this count; however, the principle that separate crimes call for separate penalties must also be followed.

The imposition of a substantial fine is not an appropriate alternative. Lawrence and Johnson have dependent families. A substantial financial penalty at this time would adversely affect their families’ immediate needs. It would either devastate them or leave Messrs. Lawrence and Johnson with the unenviable dilemma of either paying the fine, thus harming their families further, or serving additional time in default, which would have to be additional substantial time. Therefore, I have concluded that one year’s additional imprisonment to what I am about to impose would be sufficient.

On Count 10, Mr. Lawrence and his then company, Mid-Pacific Services Inc., purchased his present home at 1075 Millstream Road in West Vancouver with proceeds from this fraud. It currently has an assessed value for property tax purposes of over $1,000,000. Mid-Pacific is the registered owner. The Crown sought to forfeit this property under section 462.37 of the Criminal Code. The motion is opposed by Mr. Sean Morriss and Hydro Fuels Inc. who are civil judgment creditors of a $15M unjust enrichment award against the main player accused with a specific vesting order in the Millstream Road property in their favour.

Mr. Hilliker, on behalf of Mr. Morriss and Hydro Fuels, submitted that section 462.37 provides for forfeiture of property. He pointed out that the purpose of the section is that persons should not be entitled to retain the fruits of their criminal endeavours. However, he further submitted that in order for a forfeiture to take place, the property must be the property of the accused. If the property was transferred to a third party before the forfeiture hearing, and if there was no prior restraint order, then the property cannot be forfeited.

He relied upon the authority from the Alberta Queen's Bench of The Queen v. Gagnon, an unreported decision rendered on September 22, 1992, under the Alberta Registry number of 9103-1067C3. The Gagnon decision was later cited with approval in the Ontario Court of Appeal decision of The Queen v. Wilson, unreported, on October 27,1993 in the Registry number of C8174.

The Crown has now conceded that in light of subsection 462.37(3), Mr. Hilliker’s position is unanswerable. I agree and, therefore, rule that 1075 Millstream Road is not available for forfeiture. Although subsection 462.37(3) also permits a court to impose a fine equivalent to the amount of the proceeds of crime used for the purchase, I decline to do so for the reasons and concern expressed earlier as to the effect on Mr. Lawrence's family.

Count 10 is a continuation of Count 9 by conversion of the earlier proceeds to residential real estate. For that reason, a concurrent sentence on that count is proper. Mid-Pacific, as the earlier corporate vehicle, will be subject to a modest fine.

The Crown also applies under section 725 of the Criminal Code for a compensation order in the amount of $1M each against Messrs. Lawrence, Richards, and Johnson. The jury found fraud had taken place to the extent of 17 and a half million dollars. There has been no recovery of those funds. I have concluded such an order is, indeed, appropriate for the following reasons:

1. A jury in an eight-month criminal trial found on a criminal standard of proof beyond a reasonable doubt that fraud by these main players was perpetrated on the federal government of 17 and a half million dollars. The public purse should not be tapped to establish that again in a civil court. Section 725 was designed by Parliament to prevent that duplication.

2. Although these three convicts may not have present exigible assets in Canada, the evidence at trial disclosed that each accused had at one time at their personal disposal several millions of dollars. With the exception of Mr. Johnson, much of those monies went to overseas bank accounts in Hong Kong and London. Whether they are still available as potentially exigible assets on a reciprocal foreign judgment enforcement basis remains to be seen.

3. Unlike a fine, a compensation order is, in essence, a civil judgment available for execution in the event exigible assets surface in the future. In the event that there is no reasonable future prospect as to satisfying the judgment, that burden can later be removed under the auspices of the Bankruptcy Act. A compensation order imposed at this time will not, therefore, financially cripple these individuals or their families. Accordingly, there will be an order of $1M compensation against each of the individuals, Lawrence, Richard, and Johnson in favour of Her Majesty The Queen in Right of Canada.

Michael Richards, Roger Lawrence, and Ronald Johnson, on Counts 1 and 2, which pertain to the Bio-Mass counts, Count 1, l sentence each of you to three years' imprisonment.

On Count 2, three years’ concurrent.

On Counts 3, 4, and 5, which pertain to the Fly Ash projects, on Count 3, I sentence each of you to three years' imprisonment consecutive. Counts 4 and 5 will also be imposed three years, which will be concurrent.

Gerald Byerlay, on Count 1, I sentence you to one year's imprisonment. On Counts 2 to 5, respectively, there will be one year's imprisonment concurrent with the first. There will also be a recommendation on the warrant of committal that you be considered for electronic monitoring.

On Count 9, which is the count of proceeds of crime possession, Roger Lawrence and Ronald Johnson, I sentence each of you to one year's imprisonment consecutive to the other sentence.

On Count 10, which pertains to the possession of 1075 Millstream Road, Roger Lawrence, I sentence you to one year’s imprisonment concurrent with the other sentences.

There will be a fine of $1,000 imposed upon Mid-Pacific or in default distress.

In the result, Michael Richards will serve an aggregate term of six years’ imprisonment.

Messrs. Lawrence and Johnson, seven years' imprisonment.

Mr. Byerlay, one year's imprisonment, with the recommendation for electronic monitoring.

Mid-Pacific will be subject to a fine of $1,000.

There is also a compensation order of $1M against each of the following individuals: Roger Lawrence, Michael Richards, and Ronald Johnson.

I also direct that the Registrar of this Court include with the warrant of committal copies of the pre-sentence reports to assist the classification authorities. I would think that these individuals are eligible for classification under minimum security arrangements.

Madam Registrar, you may adjourn Court.

Order accordingly.