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R v Kazacos; ex parte Director of Public Prosecutions (Cth)[1999] QCA 218

R v Kazacos; ex parte Director of Public Prosecutions (Cth)[1999] QCA 218

 

IN THE COURT OF APPEAL

 

SUPREME COURT OF QUEENSLAND

 

C.A. No. 44 of 1999

 

Brisbane

 

THE QUEEN

 

v.

 

MICHAEL CONSTANTINE KAZACOS

Respondent

 

COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS

Appellant

McMurdo P

Pincus JA

Thomas JA

Judgment delivered 11 June 1999

Separate reasons for judgment of each member of the Court, McMurdo P dissenting

APPEAL ALLOWED TO EXTENT OF REPLACING THE ORDER FOR A NON‑PAROLE PERIOD OF 4 MONTHS IN RESPECT OF COUNT 1 AND THE ORDER FOR RELEASE IN RESPECT OF COUNTS 2 TO 4 BY AN ORDER, IN RESPECT OF ALL COUNTS, THAT THE RESPONDENT BE RELEASED AFTER HAVING SERVED 15 MONTHS IMPRISONMENT (COMMENCING ON 16 FEBRUARY 1999) UPON GIVING SECURITY BY RECOGNIZANCE IN THE SUM OF $4,000 THAT HE WILL BE OF GOOD BEHAVIOUR FOR A PERIOD OF 2 YEARS 9 MONTHS. 

DIRECT THAT RESPONDENT'S SOLICITOR EXPLAIN TO THE RESPONDENT IN ACCORDANCE WITH THE PROVISIONS OF S. 16F(2) OF THE CRIMES ACT 1914 (C'TH) THE PURPOSE AND CONSEQUENCES OF THE MAKING OF THE RECOGNIZANCE RELEASE ORDER INCLUDING IN PARTICULAR AN EXPLANATION OF THE MATTERS SET OUT IN PARAS. (a) TO (d) OF S. 16F(2).

CATCHWORDS:

CRIMINAL LAW - APPEAL AND NEW TRIAL - APPEAL AGAINST SENTENCE - APPEAL BY ATTORNEY-GENERAL OR OTHER CROWN LAW OFFICER - APPLICATION TO INCREASE SENTENCE - taxation fraud offences - respondent acting with son to evade tax - sentence manifestly inadequate - imposition of both non‑parole period and recognizance release in breach of s. 19AB(1) Crimes Act 1914 (C'th) - jurisdiction of Court to increase sentence on Crown appeal.

Chan Dinh To (1998) 100 A Crim R 558

Everett (1994) 181 CLR 295

Mackay (CA No. 12 of 1996, 13 March 1996)

Mai (CA No. 257 of 1995, 25 August 1995)

Morris [1993] 2 VR 192

Nguyen and Phan (1996) 86 A Crim R 521

Wright (1994) 74 A Crim R 152

Counsel:

Mr J A Griffin QC with him Mr P D Kelly for the appellant

Mr C Hampson QC with him Mr A Kimmins for the respondent

Solicitors:

Director of Public Prosecutions (Commonwealth) for the appellant

Price and Roobottom for the respondent

Hearing Date:16 April 1999

 

REASONS FOR JUDGMENT - McMURDO P

 

Judgment delivered 11 June 1999

 

  1. The Commonwealth Director of Public Prosecutions appeals against the sentence imposed on the respondent in the District Court at Southport on 16 February 1999 when the respondent pleaded guilty to one offence of defrauding the Commonwealth (count 1), one offence of conducting cash transactions so as to avoid a significant cash transaction report (count 2), one offence of opening accounts in false names (count 3) and one offence of possession of falsified Australian passports (count 4).[1] The respondent was sentenced to four years imprisonment with a non-parole period of four months in respect of count 1, and on each of the remaining counts two years imprisonment to be released after serving four months of that time upon giving security by recognizance of $4,000 to be of good behaviour for three years.  A penalty of $4,000 on each of charges 2-4 was to be paid on or before 16 August 1999.
  1. It is conceded that the learned sentencing judge erred in imposing both a non-parole period and a recognizance release as s 19AB(1) Crimes Act 1914 (Cth) requires that either a single recognizance release or a non-parole period be imposed as part of the sentence: it does not allow both to be imposed.
  1. The respondent is 62 years old and has no criminal history.  A large number of references from family, friends, business acquaintances and recipients of his patronage were tendered.  These referred to his prior good character, his generosity towards the less fortunate and the involvement in these offences as out of character.  Some also referred to his deep love for his son, Michael Jnr, despite his son's flaws which were obvious to others.  He is a wealthy businessman owning a valuable un-mortgaged home, four motor vehicles and a boat, who lives in retirement at the Gold Coast.  Mr Griffin QC and Mr P D Kelly, who appear for the appellant submit that more than four months actual imprisonment was warranted because of the large amount of money involved and because the fraud was calculated, involving aggravating features such as opening bank accounts in false names, the use of false passports and structured cash transactions to avoid cash transaction reports.  They submit that whilst a head sentence of 4 to 5 years was appropriate, a non-parole period of 18 months rather than 4 months should have been imposed.

The Agreed Facts

  1. The facts were set out in an agreed Summary of Allegations which was tendered at the sentence.  In essence, the charges arose from the respondent's failure to declare income of $1,256,704 in his own tax returns from 1993 to 1996 (count 1).  As a result, the Commonwealth was defrauded of $607,962.79 due to it by way of income tax.  The respondent and his son operated a Sydney brothel and escort service known as The Penthouse Club.  It seems prostitution is lawful in New South Wales.  The business was operated originally as a partnership and then through the company Interest Pty Ltd of which the respondent and his son were directors and shareholders.  Cash taken from the business was divided equally between the respondent and his son and the respondent's share of those takings was received by him at the Gold Coast.  Weekly dissection sheets for the period from 14 November 1993 to 15 January 1997 in the respondent's handwriting were found at his home when search warrants were executed, showing the club's income, some expenditure, the amount of cash banked and the amount of cash retained by the respondent and his son. 
  1. The respondent's son died on 3 November 1996.  The income tax return for the year ending 30 June 1996 was signed by the respondent on 6 December 1996 and the respondent failed to declare income of $689,253 resulting in the Commonwealth being defrauded of income tax of $334,287.71 in respect of that financial year.
  1. The tax returns for the partnership, the company, the respondent and his son were prepared by an accountant, Brian Gallie, who was untruthfully advised by the respondent that all the cash takings had been banked in the business account.  Cash shown on the respondent's weekly dissection sheets was not banked in the business account and was not included in returns signed by him from 1993 to 1996.
  1. The respondent transferred $573,000 in cash to off-shore bank accounts established by him.  This was done in 69 structured transactions so as to avoid generating significant cash transaction reports and in breach of the Financial Transaction Reports Act 1988 (Cth) (count 2). 
  1. Telephone conversations between the respondent and his son in early October 1996 were intercepted and recorded. These tapes demonstrated that the respondent was actively involved in transferring money to off-shore bank accounts which he established.
  1. In July 1998 the respondent opened three bank accounts in the name of William Robert Williams in breach of s 24(1) of the Financial Transactions Reports Act 1988 (count 3) by producing a false passport, false Citibank Visa card and false Queensland driver's licence.  He used the accounts to telegraphically transfer funds to a Hong Kong account.  When opening false accounts at the Surfers Paradise branch of the National Bank he gave his occupation as "driver" and his employer's name as "Dr Kazacos".  A handwritten letter signed by the respondent certified that William Robert Williams was employed by the respondent and resided at his address.
  1. Two passports were found in the possession of the respondent issued in the name William Robert Williams but bearing the respondent's photographs (count 4).  William Robert Williams, a cousin of the respondent, was born on the date given in the passports but died on 21 August 1993.  One false passport was used by the respondent to obtain a driver's licence in that name.

The Respondent's Evidence

  1. Although the appellant pleaded guilty, his oral and affidavit evidence was relied on at the sentence to the following effect.
  1. The respondent's premises were searched by the authorities on 16 January 1997.  On 20 January 1997, his solicitor informed the National Crime Authority that the respondent would cooperate with it and on 3 February 1997 the respondent indicated that he intended to plead guilty: he was not arrested until 20 February 1997.  The respondent had been a successful Sydney businessman in the ownership and operation of pharmacies and the importation of commercial fishing equipment and the leasing of commercial properties.  With respect to those businesses, he always met in full his income tax obligations.  In 1975, he expanded his business interests to include a beauty clinic, hairdressing and associated businesses, including naturopathy.  In 1980, because of health problems, he sold his business investments but was unable to sell the  Penthouse Beauty Clinique and installed a manager.  In about the mid‑1980s, the respondent heard rumours that the business now included prostitution and massage services and despite the manager's denials, dismissed him.  His son, Michael Jnr, then  conducted the daily management of the business as a partnership with him.  In the late 1980s prostitution was decriminalised and later legalised in New South Wales.  By the early 1990s the respondent knew the business had a partial involvement in providing prostitution services through the concept of a businessman's club. In 1992, an attempt to sell the business failed. The respondent had none of the day to day running of the business which was left entirely to his son who worked very long hours and made the business successful.  He tried to dissuade his son from failing to declare to the Taxation Commissioner amounts of cash moneys received.  Because the respondent loved his son deeply, he went along with the fraud even though he believed this was wrong: he had no need to evade tax as he was financially secure.  Michael Jnr knew the respondent had a false passport in his cousin's name which the respondent used in 1977 in order to travel overseas at the time of a marriage breakup, believing he needed his wife's written consent to leave the country.  That passport was renewed but expired in 1987.  The expired passport was used to obtain a driver's licence and then to open bank accounts.  He acted at his son's direction in arranging the transfer of money to Vanuatu and later Vienna.  When his son committed suicide, he was utterly devastated and guilt ridden.
  1. The respondent also swore that he paid a total of taxes, interest and penalties on his own account of $1,140,662 and in respect of the company Interest Pty Ltd a further $541,732; in total $1,682,394.  In respect of his son's estate, a further $1,454,474 has been paid together with a further $541,732 as his son's share in respect of Interest Pty Ltd.  The total penalties, interest and tax paid by the respondent, the company and his son's estate amount to more than the total income received from the business for the entire period. 
  1. The respondent was cross-examined only briefly and it was not put to him that his evidence was false in any respect.

The Sentencing Judge's Findings of Fact

  1. The learned sentencing judge then found the following facts.  The respondent in three annual taxation returns understated his income by $1,256,704, thereby defrauding the Commonwealth of $607,962.79.  This was done by transferring funds overseas by 69 structured transactions of less than $10,000 and by using false bank accounts and a false passport to open these accounts.  The respondent's son was the manager of the business and the respondent was a partner.  The respondent was "not an active and willing participant" in the scheme with his son to defraud the Commonwealth by cheating the Australian Tax Office but assisted him albeit reluctantly and with frequent remonstrations that what was being done was wrong.  The respondent was a "silent partner in the business, deferred to only occasionally" by his son because of his undoubted business acumen.  The respondent remonstrated with his son about paying income tax and expressed deep concern to friends about his son's attitude towards taxation.  Nevertheless, the respondent acquiesced in his son's breaches and legally shares complicity with him.  The respondent's unconditional love for his son  led him to become involved in these offences.  The respondent's son was "a strong minded, wilful and determined person whom other more objective people might be able to resist, but who had substantial power over (the respondent) because of (the respondent's) love for him.  I have no doubt that (these) offences were committed as a direct result of the desire in (the respondent) to indulge and support (his) son, notwithstanding (his) own reluctance to commit them."  Nevertheless his Honour accepted that the respondent was a willing party to counts 2 and 3 and that he voluntarily assisted his son in defrauding the Australian Taxation Office in the last few months of the enterprise in arranging off-shore banking accounts: by then the respondent was "on a treadmill from which (he) could not dismount, without exposing (his) son, as well as (himself), to prosecution".
  1. His Honour took into account the respondent's prior good character, acts of charity, favourable references, genuine remorse, grief over his son's suicide, and very substantial cooperation with authorities.  His Honour described the respondent as "a person of great value to the community generally" and apart from these offences "a man of exceptional quality".  The offences were "entirely out of character". From the time the respondent had indicated to the authorities his early intention to plead guilty, there was a delay of two years before sentence which was not attributable to the respondent.  The respondent had paid heavy penalties and interest to the Australian Taxation Office and had repaid all the evaded tax, an amount of over $1 million.  The learned sentencing judge found, even without the other financial burdens that the respondent had taken on in respect of his son's estate, that the respondent had incurred a severe financial penalty.
  1. His Honour recognised the need for deterrence as taxation fraud imposes an "enormous financial burden on every taxpayer" and referred briefly to comparable cases.  He concluded that, although there were "substantial matters of mitigation", a period of actual imprisonment was warranted, however, "a token period of actual imprisonment is all but (sic) justice requires in this case".  He imposed a head sentence of four years with a non-parole period of four months in respect of count 1 and lesser penalties on the remaining offences.
  1. The only fact found by the sentencing judge with which issue is taken is that the appellant submits there was no evidence that the respondent personally bore the tax or penalty for his son's estate or the company.  His Honour made no such finding: he rejected the appellant's submission below that the payment of evaded tax, penalties and interest was not a financial hardship to the respondent, concluding on that issue, "there is no doubt that you have been severely penalised already in a financial sense, even if your pecuniary contributions to the debts assessed against your son's estate and against Interest Pty Ltd are ignored".
  1. Although findings of fact less favourable to the respondent were at least equally open, I am not persuaded that his Honour erred in his fact-finding; nor is it submitted there has been any significant error in fact-finding.
  1. The appellant submits that the sentencing judge gave undue weight to the influence of the respondent's son, emphasising that the last tax return was signed by the respondent after his son had died and over half the amount defrauded relates to this return.  The respondent's son died on 3 November 1996 and the return was signed a few weeks later on 6 December 1996.  This action constituted a continuation and furtherance of the fraud but on the other hand, to stop the fraud at that time would have required considerable effort on the part of the respondent when he was grief-stricken over the death of his son.  The sentencing judge's description of the respondent as  on "a treadmill" at this time is appropriate.  The sentencing judge was in my view entitled to draw the inference that the respondent's son was a major influence on the respondent.
  1. The appellant's primary complaint is that the sentencing judge failed to give sufficient weight to the amount of the fraud and gave undue weight to the devious and intricate nature of the scheme and the respondent's substantial involvement: he sent over $500,000 to Europe where he personally set up bank accounts.  His Honour does, however, appear to have considered these issues, saying:

"The sentence of every offender involves a balancing of the factors which aggravate the offence and those which tend to mitigation.  It is always a delicate operation and one on which unanimity is unlikely to be achieved.  There is no doubting the general principle relevant to this matter, that offenders who commit serious frauds on the revenue should receive custodial sentences of immediate imprisonment.  It matters not that the circumstances of the offence are unsophisticated, as they were here.  The simplest form of fraud on the Commonwealth is achieved by the regular misdirection of the cash proceeds of a business which does not vouch for its receipts.  That type of tax evasion must be very difficult to detect, possibly more difficult than those supported by reams of carefully drafted legal documents of which the true nature can be gleaned with some difficulty once the true facts are discovered.

Taxation fraud ultimately imposes an enormous financial burden on every taxpayer and there is no question general deterrence is a matter of paramount importance in such cases.  However, it is not the only consideration.  The comparative sentences put before me by both counsel clearly demonstrate the wide variety of circumstances which must be considered in arriving at an appropriate sentence."

Comparable Sentences

  1. In order to determine whether or not his Honour gave sufficient weight to the relevant factors, it is necessary to consider the established principles and review sentences which may in some ways be comparable.
  1. Defrauding the revenue, especially of large amounts of money as here, is a most serious matter and even where financial reparation is made, will usually result in a custodial sentence with some period of actual imprisonment served: see R v Morris.[2]  In that case, income of $473,712 was underestimated over nine years.  Morris, a Victorian barrister, who paid the avoided tax and penalties of $286,792.22, was originally given a one year suspended sentence, in part because the taxation authorities for two years led him to believe he would not be prosecuted. On appeal, his sentence was increased  to 18 months imprisonment but subject to a release on recognizance after serving six months imprisonment.
  1. In R v Wright,[3] income of $211,252 was fraudulently underestimated in 1990 and 1991.  Unbeknown to Wright, because of his accountant's earlier errors, his fraud was almost cancelled by his tax credits, so that the actual loss to the Commonwealth was small.  Wright was originally sentenced to 12 months suspended imprisonment and a $5,000 fine.  Despite his early plea of guilty, lack of prior convictions and respected community standing, this Court held that a period of actual imprisonment was required to sufficiently reflect the need for general deterrence.  In reaching that conclusion, the Court compared the ranges of sentences imposed in tax fraud cases to those imposed in social security fraud cases.  The schedule there tendered in respect of social security fraud cases in excess of $60,000 demonstrated that custodial sentences were imposed in ten of the eleven cases cited: the largest fraud which involved $164,361.53 resulted in a four year term of imprisonment with a non-parole period of two and a half years.  The Court noted that whilst the schedule of social security or medicare frauds suggested service of a term of imprisonment was necessary except where there were strong mitigating circumstances, the same pattern did not emerge so clearly in respect of cases involving taxation fraud.  In my view, whilst the two streams of cases are similar in that both relate to the dishonest use of government money, some distinctions remain: social security fraud involves the fraudulent obtaining of community money provided to assist community members in genuine need whilst taxation fraud involves offenders fraudulently failing to declare to the Revenue income earned or received by them.  It is trite to say that where a case, whether social security or taxation fraud, falls on the scale of seriousness will depend on the unique facts of each case. Davies JA and White J concluded in Wright that "where a calculated and systematic tax fraud involves a substantial sum of money the offender should usually be required to serve a term of imprisonment particularly where, as in this case, it is not an isolated act but is persisted in for some time".[4]
  1. In R v Mai,[5] this Court, after considering Wright's case, varied the sentence imposed below for three counts of defrauding the Commonwealth by understating income totalling $153,000 by substituting for a two and half year fully suspended term of imprisonment a requirement that three months imprisonment be served before being released under recognizance.  Mai was repaying the money to the Revenue.  He had three children, one at primary school.  The Court noted that in the absence of special circumstances,  a sentence of detention, even if only for a short period, was essential as a deterrent.
  1. In R v Mackay,[6] Mackay and Griffiths (who was not charged because of his ill-health) each made a profit of a little over $200,000 on a transaction and did not declare this as part of their assessable income.  Mackay was originally sentenced to 18 months fully suspended imprisonment.  This Court varied that order by ordering that he be released on recognizance after serving three months of the term imposed.  Davies JA noted:

"The other considerations in favour of the respondent were the absence of any previous convictions and the high regard in which he was held by at least those who gave written references tendered on his behalf at the sentence hearing.

However, it is not uncommon in cases involving offences of this kind to find that the offender was otherwise of an apparently good character.  In summary, I can find nothing in this case which justifies a departure from the general view taken by this Court that in offences of this kind and this seriousness, a sentence involving a term of actual imprisonment is required, not least because of the difficulty in their detection and consequently the need for general deterrence."

  1. In R v To and Do,[7] the Commonwealth Director of Public Prosecutions appealed against the sentences imposed for defrauding the Commonwealth of a total of $158,458.52.  The male respondent To was sentenced to three years imprisonment with an order for his release after serving nine months.  The female respondent Do, the wife of To, was sentenced to three years imprisonment with an order for release after serving four months.  The offences were committed over a six year period; the respondents pleaded guilty although not at an early stage; they were aged 43 and 44 years respectively and had arrived from Vietnam in 1983.  The respondents used false names to earn or conceal their income and provided false information to substantiate large deductions, falsely attributed income to other taxpayers and failed to declare income.  They obtained sickness and other benefits from the Department of Social Security by falsely stating their true income and by failing to declare income received.  In addition, they wrongly claimed and received family allowance and Austudy payments.  The respondents thus committed offences of defrauding the revenue and the Department of Social Security.  Some reparation was made but $91,000 was still outstanding: when the investigation commenced, they attempted to place their assets beyond reach by becoming bankrupt on their own applications.  The Australian Taxation Office spent $39,000 attempting to recover its funds.  The respondents had four children, the youngest only 12 years of age.  They suffered hardship in Vietnam and were industrious and hardworking in Australia.  To had one previous conviction for failing to lodge tax returns.  This Court held that the scale, extent and duration of the offences required

"... the imposition of a higher head sentence.  The criminal character of acts of predation on schemes designed to help those in need is greatly exacerbated if it is perpetrated, as it was here, by persons who themselves are materially well off."[8]

The Court found a head sentence of not less than four years was appropriate.  The Court considered the importance of general and particular deterrence and the provisions of s 19AA(1) of the Crimes Act which applies State laws of remission to Federal sentences served in a State prison.  To's head sentence was increased to four years imprisonment with a non-parole period of 18 months.  The Court did not interfere with Do's sentence as she was persuaded to become involved in the offences by her husband, had significant medical problems and was the primary carer for her 12 year old son and elderly father.

  1. The heaviest penalty yet imposed in an offence of this type appears to be that in R v Nguyen and Phan.[9] Nguyen and Phan were in partnership in the clothing industry in Melbourne.  They paid their out-workers in cash at a lower rate so that they, too, could defraud the revenue.  They were paid by cheque but only a small portion of their income was shown in the partnership tax returns: the remaining cheques were discounted for 5 per cent in a money laundering operation.  The total tax evaded by each was $455,000, a combined total of $911,000.  Once aware of the investigation, the records of payments to out-workers were destroyed.  Nguyen and Phan had been made bankrupt and none of the tax debt repaid.  Phan called evidence at his sentence that income tax evasion was endemic in that branch of the clothing industry.  Nguyen was 49 and Phan 34; they came to Australia from Vietnam; they had no prior convictions; Nguyen was married and had five children, four of whom were still at school and Phan was married with three children, all at school.  Nguyen and Phan were each sentenced to 18 months imprisonment on each count under s 29D of the Crimes Act 1914 (Cth) with the second sentence commencing one year after the first, making a total effective sentence of two years six months to be released after serving 18 months. As about 50 per cent of the undeclared income had been paid to out-workers, a reparation order was made against each offender for $232,416.  Nguyen and Phan appealed against their sentences.  Brooking JA, with whom Winneke P and Callaway JA agreed, said:

"The seriousness of the offence of defrauding the Commonwealth of a large sum of money by not declaring assessable income has in the past, perhaps, not always been sufficiently reflected in the sentence passed.  Those who systematically defraud the Revenue of a large sum over a substantial period must in general expect a substantial custodial sentence.  The deterrent and punitive effects of that sentence should not be unduly diminished by allowing release from custody at an unduly early stage.

The amounts in the present case were very large and the offences were committed in a branch of an industry in which, according to the evidence led and the assertions made by counsel on the plea, tax evasion by manufacturers by the failure to disclose income could probably, without any exaggeration, be described as the norm.  The prevalence of the offence, the stated incentives to commit it and the difficulty of detecting it are important considerations.  No reparation has been made and it is highly unlikely that the Revenue will ever recover any substantial amount."[10]

The Court concluded that the sentence imposed was not manifestly excessive.

Conclusion

  1. The learned sentencing judge here acted on the general principle, apparent from these cases, that in the absence of special circumstances, offenders like the respondent who commit a calculated act of serious fraud on the revenue should ordinarily receive a substantial period of imprisonment, especially where large amounts are involved and the fraud continued over a period of some years. This is necessary both as a particular and general deterrent. The review of comparable sentences demonstrates an increase in recent years in the penalties imposed by courts for offences against the Revenue.
  1. On the facts found by the sentencing judge, there were considerable mitigating circumstances although certainly none that could justify a wholly suspended sentence or an immediate release on recognizance.  For many who might commit offences of this type, the public humiliation of being convicted of such a serious offence and the imposition of a substantial custodial sentence which requires serving some of that period, even a relatively short period, in actual and immediate custody is substantial punishment and a very effective deterrent.  The deterrence is the serving of a term of imprisonment, rather than the length of it.  It is regrettable his Honour used the expression "a token period of imprisonment" here.  A four month period of actual imprisonment, even as part of a four year term of imprisonment is not in my view nominal or token, although it involves a much earlier release date than is usual for a four year sentence. The very early release date does not of itself show error and whether it is appropriate will depend on the facts of the case: see Lowe v The Queen.[11]
  1. His Honour took into account in the respondent's favour that he had repaid the tax he owed together with penalties.  In some instances impecuniosity and desperation rather than greed may drive an offender to commit offences of this type and repayment of the tax or penalty is not feasible.  It would be wrong to conclude that an offender who can afford to make such payments must necessarily receive a lighter sentence than one who cannot. It is however in the public interest to encourage such payments for the benefit of the Revenue and as a deterrent.  Such payments are a mitigating factor although invariably the appropriate sentence will always turn on the unique facts of each case.
  1. The determination of the appropriate sentence in this case must be affected by the very favourable view the sentencing judge took of the respondent.  The appellant does not submit the substantial head sentence of four years imprisonment is flawed: this head sentence recognises the seriousness of the objective conduct of the respondent in his involvement in this fraud and should act as a personal and general deterrent.  The actual period of imprisonment to be served of four months very generously takes into account the sentencing judge's findings that these offences were out of character; the respondent's otherwise excellent character; his age; his involvement in the offences only through the request of his much-loved and now deceased son; the very substantial payment of taxes and penalties made; the extensive cooperation, genuine remorse and early plea offered by the respondent and his guilt over his son's suicide.
  1. In Everett v The Queen[12] Brennan J (as he then was) Deane, Dawson, Gaudron JJ discussed the Court of Criminal Appeal's jurisdiction to grant leave to the Attorney-General to appeal against sentence in the following terms:

"Such a jurisdiction has become common place throughout this country and the common law world.  Nonetheless, in its exercise, a Court of Criminal Appeal must in the absence of clear statutory direction to the contrary, recognise that there are strong reasons why the jurisdiction to grant leave to the Attorney-General to appeal against sentence should be exercised only in the rare and exceptional case.  An appeal by the Crown against sentence has long been accepted in this country as cutting across the time-honoured concepts of criminal administration by putting in jeopardy for the second time the freedom beyond the sentence imposed. That being so, a 'Court entrusted with the jurisdiction to grant or refuse such leave should give careful and distinct consideration to the question whether the Attorney-General has discharged the onus of persuading it that the circumstances are such as to bring the particular case within the rare category in which a grant of leave to the Attorney-General to appeal against sentence is justified (Malvaso v The Queen (1989) 168 CLR 227, at pp.  234-235)'.

In determining whether that question should be answered in the affirmative, a Court of Criminal Appeal should be guided by the following comment of Barwick CJ in Griffith v The Queen ((1977) 137 CLR 293 at p.310).

'an appeal by the Attorney-General should be a rarity, brought only to establish some matter of principle and to afford an opportunity for the Court of Criminal Appeal to perform its proper function in this respect, namely, to lay down principles for the governance and guidance of courts having the duty of sentencing convicted persons.'

The reference to 'matter of principle' in that passage must be understood as encompassing what is necessary to avoid the kind of manifest inadequacy or inconsistency in sentencing standards which Barwick CJ saw as constituting 'error in point of principle' (at 310)."

See also R v.  Melano; ex parte Attorney-General (1995) 2 Qd R 186.

  1. Whilst a longer period of actual imprisonment as suggested here by the appellant could well have been imposed, as could a higher head sentence (especially if a less favourable view of the respondent were taken) I am finally persuaded that the sentence is within the proper range of a sound exercise of discretion, albeit at the lenient end of that range.
  1. Nevertheless, both parties agree the sentence must be corrected to remedy the difficulty arising out of s 19AB of the Crimes Act 1914 which does not allow for both a single recognizance release and a non-parole order to be imposed in one sentence.  I would therefore allow the appeal  to that limited extent and would vary the sentence imposed below on count 1, by deleting the words "I further order that there be a non-parole period of four months" and substituting the words "I further order that you be released after serving four months of that term upon you giving security by recognizance in the sum of $4,000 that you will be of good behaviour for the period of four years." Otherwise I would confirm the sentence imposed below. 
  1. As this does not effectively alter the sentence imposed below, the parties agree that the sentencing judge's explanation of the sentence to the respondent constituted sufficient compliance with the requirements of s 16F(2) of the Crimes Act 1914 (Cth).

 

REASONS FOR JUDGMENT - PINCUS JA

 

Judgment delivered 11 June 1999

 

  1. In this appeal the Commonwealth Director of Public Prosecutions undertakes the burden of satisfying the Court that the sentence imposed on the respondent was inadequate.
  1. In recent decisions this Court has set its face against creating an "invidious distinction" between the sentencing treatment of social security frauds and that of tax frauds:  Mai (CA No 257 of 1995, 25 August 1995) per McPherson JA at 8.  Here over $600,000 in tax was evaded by fraud, the income being the proceeds of running a brothel.  Holding the respondent to be a man of "exceptional quality" who had been motivated by affection for his business partner, who was his son, the judge imposed what his Honour called a "token" period of actual imprisonment of 4 months.  The sentence is a low one, not calculated to have the effect his Honour suggested it would have, of sending "a clear message to other potential taxation cheats".  The question is, however, whether the case falls within that narrow category in which it is proper to increase a sentence on appeal. 
  1. This involves some analysis of the facts, but before doing so it is desirable to make some reference to authorities on social security fraud, a summary of some of which appears as a schedule to the report in Wright (1994) 74 A Crim R 152.  The schedule deals with overpayments of about $60,000 up to about $160,000.  The results are as follows -

1

Immediate release

3

Less than 12 months

4

1 to 2 years

3

More than 2 years

Only two of the social security offenders (Carstensen and Blanco) were more leniently treated than the respondent.

  1. On the other hand, it is impossible to leave a study of the taxation fraud cases without having gained the impression that there is a tendency to put fraud of this sort in a special category.  Reasons for that approach, perhaps, include that judges believe that tax fraud, particularly in cash businesses, is common and that there is a considerable element of chance in the identification of those tax fraudsters who will turn out to be unfortunate enough to be imprisoned for their offences.  Another possible reason for a generally lenient approach is the perception that there is no great ethical gulf between simple evasion, as in the present case, and some clever avoidance schemes which, in ways it is hard for the citizen to comprehend, artificially reduce what might otherwise have been vast taxable incomes.
  1. The primary judge had three sources of information from which to determine the circumstances in which the respondent's frauds occurred.  First, there was a document agreed between the parties headed "Summary of Allegations";  the Court was told that lengthy negotiations had produced this document.  If, during the course of those negotiations, those on the prosecution side derived the impression that these agreed facts were to form the basis of sentencing, they must have been disappointed.  For on the day of the hearing there was produced on behalf of the respondent an elaborate affidavit putting a complexion on events rather different from that produced by the agreed statement.  This second source of information, the affidavit, greatly influenced the favourable outcome of the sentencing process.  The third source of information consisted in documents - correspondence and transcripts of conversations - and these seemed to make rather suspect some of the assertions in the affidavit.
  1. There were three letters in the material before the judge.  The scheme of evasion first operated in the 1993-94 year.  Two of the letters to which I shall refer were written in June 1995, at the end of the second year of the scheme, and the third was written in February 1996, during the third year of its operation.  The first letter, dated 1 June 1995, was faxed to the respondent, it appears, by his accountant and related to a transfer of an interest in "the partnership to the company Interest Pty Ltd".  It is clear from the letter that the partnership referred to was that which was the subject of the tax fraud scheme.  The accountant explained, in effect, that he was sending the details to the respondent at the suggestion of the respondent's son Michael "as the transactions not only involve tax planning but also stamp duty".  The letter dealt with minutes of directors' meetings, supposedly held at earlier dates, recording the "take over" of the business by the company and the acquisition by the company of the partnership assets.  The dates of these events were explained to have been chosen for reasons other than that the events they purported to record actually happened on the dates set out.  Another point made in the letter was that "we must decide upon what value the goodwill will have in this arrangement", and it set out some rather sophisticated considerations which had, it appears, been discussed with the respondent's son and one "Ian", not otherwise identified.  The letter discussed also the possibility of a purchase of a further share in the business by Ian, as to which the accountant saw no problem "because you and Michael still control more than half the shares".
  1. The second letter, dated 21 June 1995, addressed by the accountant to the respondent, referred to "our brief discussion concerning fees for the past year" and went on to set out considerations justifying the accountant's fee and making a proposal for further fee arrangements.  A postscript said that the accountant had suggested to the respondent's son that fees might be settled monthly and concluded:

"But he likes these matters to be referred back to you, so you might let me know what you think".

  1. The third letter, dated 26 February 1996, dealt with the explanation of the reason why a certain profit result was lower for the December quarter just past than for the September quarter.  A document attached to it showed that it related to the company mentioned in the letter of 1 June 1995, to which I have already referred, and referred to that company as having earned consulting fees in each of the two quarters in question.  The explanations in the letter were, it appears, designed to convince the respondent that the substantial drop in profit from the September quarter to the December quarter was capable of rational explanation which was set out in the letter and the accompanying income and expenditure accounts.
  1. The correspondence suggests that the accountant regarded the respondent, at the times these letters were written, as a person who needed to be kept informed and consulted about the way in which the business was being run and that this process included reference to ways of minimising revenue obligations.  In view of the contents of these letters, not referred to in the reasons of the primary judge, it is not easy to understand the description by the judge of the respondent as a "silent partner" in the business. 
  1. Nor does that description accord well with transcripts of conversations between the respondent and his son, during the time when the respondent was engaged in arranging to hide profit in overseas bank accounts.  Having read those transcripts I concur, with one exception, with the explanation of their significance included in the judge's reasons on sentence:

"... I agree that superficially they do tend to suggest that you were intricately involved in the business managed by your son, or were, at least, an advisor with detailed knowledge of the nature of the business and your son's financial arrangements".

The exception is that I do not understand why the word "superficially" is used. 

  1. Table 2, annexed to the agreed statement of facts, shows that over a period of 14 months beginning in July 1995 the respondent, usually in his own name but on some occasions in a false name, regularly deposited amounts short of $10,000 - generally, between $8,000 and $9,000 - in bank accounts as part of the tax evasion scheme.  These transactions were the subject of the count relating to 69 nonreportable cash transactions mentioned in the President's reasons.  To some extent, the modus operandi of the respondent in this process of hiding money away appears from the transcripts to which I have referred;  from them it seems clear that the idea that the respondent was a "silent partner" or a mere pawn in his son's hands is incorrect. It is worthwhile setting out the agreed facts relating to one of the deposits in the schedule to which I have referred:

"Also on 18 July 1996 Mr Kazacos approached the Surfers Paradise branch of the National Bank and applied to open an account in the name William Robert Williams.  He gave his occupation as Driver and his employer's name as Dr Kazacos.  He produced as identification the driver's licence issued earlier that day in the name Williams, together with the supplementary Citibank visa card in that name and an employer's letter.  He also produced a passport in the name Williams, but the counter officer would not accept the passport as evidence of identity because it had expired.  When a search warrant was executed on Mr Kazacos' home one of the items seized there was a handwritten letter dated July 8, 1996, and signed Dr Michael C Kazacos;  it reads:

'To whom it may concern.

This is to certify that Mr William (Bill) Robert Williams is presently employed by me and residing at this address.'

The account was opened in the name of Williams".

  1. The learned primary judge made findings, which are not easy to reconcile, about the business relationship between the respondent and his son.  I have referred already to his Honour's description of the respondent as a "silent partner";  presumably because of the indications to the contrary contained in the documents I have discussed above, his Honour added that the respondent was "deferred to only occasionally by your son because of your undoubted business acumen".  But the judge, who took the view (on the basis of the affidavit, it appears) that the respondent had been persuaded to engage in the three year tax fraud scheme by his son, found that -

"... your reluctance having been overcome ... you were a willing party to the activities constituting the offences in counts 2 and 3.  Further I am satisfied that your conduct in the last few months of the entire enterprise in arranging offshore banking accounts was entirely voluntary and intended to assist your son in defrauding the Australian Taxation Office".

Counts 2 and 3 consisted in the 69 cash transactions referred to above and the opening of accounts in the false name William Robert Williams.  The judge's observation excludes count 1, which is the fraud count relating to the three fiscal years.  The exclusion of the allegation concerning the last year, that ended 30 June 1996, is not easy to follow, since when the tax return for that year, understating income by a sum approaching $700,000, was signed by the respondent, his son was dead.

  1. The learned primary judge described the respondent's fraudulent conduct as having been "born of unconditional love for your son".  That conclusion is difficult to accept;  the assumption appears to be that it was necessary, in order for the fraudulent scheme which the son advocated to be effected, for the respondent to take part in it.  But the affection to which the judge referred could more easily, and quite lawfully, have been expressed by the father simply withdrawing from the partnership;  he had it appears adequate funds of his own.  The same observation may be made with respect to the judge's view that the offences were committed because of the respondent's "desire ... to indulge and support your son".  The scheme plainly benefited the son, but benefited the respondent equally, a point he was able to check from dissection sheets prepared each week showing a summary of income and expenditure, the amounts banked and the amounts of cash remaining.  The weekly dissection sheets were, it was admitted, prepared by the respondent from material faxed to him by his son.
  1. The Court was not dealing with a casual or impulsive act of evasion, but with a long-lasting scheme in the course of which the respondent personally committed many illegal acts to give effect to the scheme, some involving the use of a false name and false passport.  The finding that the respondent entered into the scheme at his son's insistence is not challenged, nor are the favourable conclusions as to character which the judge drew from the many references which were tendered.  But the case remains a bad example of tax fraud, not committed by a person who was or claimed to be driven by financial necessity.
  1. The principal sentence which is urged upon us on behalf of the appellant is that imposed on the major offender Chan Dinh To in a decision of this Court reported in (1998) 100 A Crim R 558:  a 4 year sentence with a non-parole period of 18 months.  In Chan Dinh To this Court had to deal with a case of tax and other fraud brought against two respondents, the total amount of which the Commonwealth was defrauded being about a quarter of the sum of which this single respondent defrauded it.  There were mitigating circumstances in the Chan Dinh To case which are mentioned at page 563 of the report and it does not appear to me that the present respondent's position, considered as a whole, is much more deserving of special consideration than Chan Dinh To's.  I have however taken into account, in favour of the respondent, the matters mentioned in the reasons of Thomas J.A. and in particular those mentioned in the last paragraph of those reasons.
  1. The sentencing judge imposed a 4 year sentence in respect of count 1, for which a non‑parole period of 4 months was fixed, and 2 year sentences in respect of the other counts accompanied by an order for release under s. 20(1)(b) of the Crimes Act 1914 (C'th).  It was submitted for the respondent that his Honour should have made a s. 20(1)(b) order in respect of all sentences;  the appellant agreed with that contention.  I propose that the appeal be allowed to the extent of replacing the order for a non-parole period of 4 months in respect of count 1 and the order for release in respect of counts 2 to 4 by an order, in respect of all counts, that the respondent be released after having served 15 months imprisonment (commencing on 16 February 1999) upon giving security by recognizance in the sum of $4,000 that he will be of good behaviour for a period of 2 years 9 months.  I would further direct that the respondent's solicitor explain to the respondent in accordance with the provisions of s. 16F(2) of the Crimes Act 1914 (C'th) the purpose and consequences of the making of the recognizance release order including in particular an explanation of the matters set out in paras. (a) to (d) of s. 16F(2).
  1. I would add that we were told that the respondent has paid a penalty of $12,000 which was regarded as having been required by the sentencing judge's orders.  His Honour in fact made payment of the penalty a condition of the release order.  It is not clear how the agreement of the parties, referred to above, affects that aspect of the order made below.  If any difficulty arises in that respect the parties are at liberty to raise the matter with the Court.

 

REASONS FOR JUDGMENT - THOMAS JA

 

Judgment delivered 11 June 1999

 

  1. The facts are set out in the reasons of the President and Pincus JA which I have had the advantage of reading.
  1. This was a taxation fraud of very large proportions, involving the withholding of cash earned by a business owned by the respondent and his son.  Over a three year period they diverted more than one and a quarter million dollars of income and covered up its diversion by devious means largely carried out by the respondent.  The result was the evasion of more than $600,000.00 in tax.
  1. I have concluded that the sentence imposed by the learned sentencing judge of four years with a "token" non-parole period of four months is manifestly inadequate and that a sentence needs to be imposed which gives more emphasis to the aspect of public deterrence.  The learned sentencing judge said that the head sentence was "a clear message to other potential taxation cheats", but in my view that is not so when another part of the sentence virtually ensures release after four months.
  1. The learned sentencing judge took a sympathetic attitude towards the activities of the respondent, accepting as he did the contents of an affidavit filed on the respondent's behalf on  the day of the hearing.  There was little effective cross-examination in relation to it, and this court should respect the primary findings of fact made by the learned sentencing judge.  This court however has a duty to consider the effect of evidence as a whole and in particular the inferences that may properly be drawn from it, although I acknowledge some difficulty in distinguishing the inferences from the primary facts in the present matter.  As I see it the affidavit of the respondent was in the nature of a confession and partial avoidance of the established details concerning the evasion.  The main point that was sought to be made on behalf of the respondent was that he was a reluctant participant in the primary taxation fraud (although he was an active and independent actor in the cover-up activities).  The learned sentencing judge has undoubtedly accepted that he became involved in the taxation fraud at the instigation of his son, that he remonstrated unsuccessfully and continued to be involved in the fraud in order to please his son.
  1. These matters go to the moral culpability of the respondent.  His statements include "I would have died for my son but instead I cheated on tax for him", "I was a willing but reluctant accomplice" and "I grudgingly assisted my son ... against my better judgment".  While these matters place the matter into a credible perspective (which has been accepted) and may evoke some sympathy for the respondent when his grief over the death of his son is understood, the circumstances do not in my view substantially lower the respondent's moral culpability.  It was activity which happened to benefit his own estate along with his son's (to the detriment of the community) by very considerable sums of money.  His heavy personal involvement in the steps that would enable the benefit of the fraud to be retained is significant.  So is the fact that the respondent submitted the final taxation return which gained the largest advantage of all (with income understated by $689,000.00) after his son's death.  His position comes down to this - "It was my son's idea, but I reluctantly went along with it, took whatever devious steps were necessary to help it to succeed, and profited mightily from doing so".  The mitigating effect of his ambivalence entitles him to some reduction in comparison with the sentence that might be imposed upon an enthusiastic instigator, but it does not entitle the respondent to anything like the leniency which was extended at first instance.
  1. It is unnecessary to canvass the cases which have been mentioned in the reasons of the other members of the court.  I perceive a hardening in the attitude of courts towards cases of this kind in recent years, after a period when the courts, in hindsight, seem to have treated such fraudulent activities with surprising benignity.  It may be noted that only last Friday this court in allowing an appeal by the Commonwealth DPP substituted a sentence of six years with a non-parole period of two years in respect of a tax agent who misappropriated over $800,000.00.[13] I do not suggest that that decision is comparable, but cite it to indicate that the level of sentences deemed appropriate for large fraud cases are tending to become sterner and more consistent, and it can no longer be thought that an indulgent attitude exists in favour of substantial tax cheats.
  1. When one takes into account in the present matter the extent to which the respondent has been publicly shamed, his initial ambivalence concerning the relevant activity, the fact that he is a 62 year old man with otherwise excellent character and antecedents, and the very substantial administrative penalties that have been extracted already and may be further extracted either directly or indirectly from him, I consider that the appeal should be allowed and that a sentence should be substituted of four years imprisonment with a release order after 15 months.  I agree with the orders proposed by Pincus JA.

Footnotes

[1]The appellant's right of appeal is under s 669A(1) of the Criminal Code. See R v Morex Meat Australia Pty Ltd and Doube [1996] 1 Qd R 418, 443; s 68(2) Judiciary Act 1903 (Cth); s 9(7) Director of Public Prosecutions Act 1983.

[2][1993] 2 VR 192, 197-198.

[3](1994) 74 A Crim R 152.

[4]160.

[5]CA No 257 of 1995, unreported, 25 August 1995.

[6]CA No 12 of 1996, unreported, 13 March 1996.

[7](1998) 100 A Crim R 558.

[8]560-561.

[9](1996) 86 A Crim R 521.

[10]At 525.

[11](1984) 154 CLR 606, Gibbs CJ at 610 and Dawson J at 625.

[12](1994) 181 CLR 295 at 229-230.

[13]R v Baunach, ex parte Commonwealth DPP, CA No 88 of 1999, 4 June 1999.

Close

Editorial Notes

  • Published Case Name:

    R v Kazacos; ex parte DPP (Cth)

  • Shortened Case Name:

    R v Kazacos; ex parte Director of Public Prosecutions (Cth)

  • MNC:

    [1999] QCA 218

  • Court:

    QCA

  • Judge(s):

    McMurdo P, Pincus JA, Thomas JA

  • Date:

    11 Jun 1999

Litigation History

EventCitation or FileDateNotes
Appeal Determined (QCA)[1999] QCA 218 (1999) 106 A Crim R 25211 Jun 1999Commonwealth Director's appeal against sentence allowed; respondent re-sentenced: Pincus JA, Thomas JA (McMurdo P dissenting)

Appeal Status

Appeal Determined (QCA)

Cases Cited

Case NameFull CitationFrequency
Everett v The Queen (1994) 181 CLR 295
2 citations
Jump To
Cite 1 - (1994) 181 CLR 295
Cite 2 - (1994) 181 CLR 295
Griffiths v The Queen (1977) 137 CLR 293
1 citation
Jump To
Cite 1 - (1977) 137 CLR 293
Lowe v The Queen (1984) 154 CLR 606
1 citation
Jump To
Cite 1 - (1984) 154 CLR 606
Malvaso v The Queen (1989) 168 C.L.R 227
1 citation
Jump To
Cite 1 - (1989) 168 C.L.R 227
R v Melano[1995] 2 Qd R 186; [1994] QCA 523
1 citation
Jump To
Cite 1 - [1995] 2 Qd R 186
R v Morex Meat Australia Pty Ltd and Doube [1996] 1 Qd R 418
1 citation
Jump To
Cite 1 - [1996] 1 Qd R 418
R v Morris [1993] 2 VR 192
2 citations
Jump To
Cite 1 - [1993] 2 VR 192
Cite 2 - [1993] 2 VR 192
R v Nguyen & Phan (1996) 86 A Crim R 521
2 citations
Jump To
Cite 1 - (1996) 86 A Crim R 521
Cite 2 - (1996) 86 A Crim R 521
R v To and Do (1998) 100 A Crim R 558
3 citations
Jump To
Cite 1 - (1998) 100 A Crim R 558
Cite 2 - (1998) 100 A Crim R 558
Cite 3 - (1998) 100 A Crim R 558
R v Wright (1994) 74 A Crim R 152
3 citations
Jump To
Cite 1 - (1994) 74 A Crim R 152
Cite 2 - (1994) 74 A Crim R 152
Cite 3 - (1994) 74 A Crim R 152
The Queen v Mackay [1996] QCA 102
1 citation
Jump To
Cite 1 - [1996] QCA 102
The Queen v Mai [1995] QCA 451
1 citation
Jump To
Cite 1 - [1995] QCA 451

Cases Citing

Case NameFull CitationFrequency
R v Ruha, Ruha & Harris; ex parte Director of Public Prosecutions (Cth)[2011] 2 Qd R 456; [2010] QCA 102 citations
1

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