CDirector of Public Prosecutions v Gerathy (Sentence)
[2018] VSC 289
•1 June 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
CRIMINAL DIVISION
S CR 2014 0080
| COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS |
| v |
| CLIFFORD JOHN GERATHY |
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JUDGE: | BELL J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 May 2018 |
DATE OF SENTENCE: | 1 June 2018 |
CASE MAY BE CITED AS: | CDPP v Gerathy (Sentence) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 289 (revised 4 June 2018) |
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CRIMINAL LAW – sentencing – false accounting – concurring in falsification of debit note – plea of guilty – commission payment under oral agreement disguised as reimbursement of agent’s expenses – sales employee in middle management acting on instructions of senior management – falsification done in commercial interests of company, not in personal interests of employee – falsification done with intention to gain for another person, not employee – employee believed the other person was legally entitled to payment as commission – but employee knew that debit note was false – elements of offence of false accounting – gravity of offending – specific deterrence – general deterrence – impact of publicity upon employee – employee in grievous ill-health – otherwise of exemplary character – long career ruined – strong evidence of remorse – plea of guilty entered as soon as elements of offence judicially determined in pre-trial ruling – high utility and more than timely – strong co-operation between defence and prosecution in preparing for trial and conduct of proceeding generally – suspended sentence still available despite abolition of that kind of sentence – Crimes Act 1958 (Vic) s 83, Sentencing Act 1991 (Vic) s 27(1) and (1A).
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APPEARANCES: | Counsel | Solicitors |
| For the prosecution | Mr K T Armstrong | Office of Commonwealth Director of Public Prosecutions |
| For the defence | Mr A M Thomas with Mr C Fairfield | Doogue George Defence Lawyers |
HIS HONOUR:
Clifford John Gerathy is charged with one count of false accounting contrary to s 83(1) of the Crimes Act 1958 (Vic) to which he has pleaded guilty.
The charge is specified in the indictment as follows:
PARTICULARS AND STATEMENT OF OFFENCE
The Director of Public Prosecutions for the State of Victoria charges that CLIFFORD JOHN GERATHY at Craigieburn in Victoria and divers other places on or about 12 July 2006 dishonestly and with a view to gain for another, falsified a document made or required for an accounting purpose, in that he concurred in the making in a document of an entry which was false in a material particular, namely in a debit note numbered AKSA/S/0604/06 from Aksavest to Securency Pty Ltd which falsely described the costs payable as related to marketing and other expenses.
Statement of Offence — False accounting contrary to section 83 of the Crimes Act 1958 (Vic).
The prosecution has provided these following further and better particulars:
FURTHER AND BETTER PARTICULARS OF CHARGE
In response to the request made by the accused on 6 April 2018 for further and better particulars, the prosecution provides the following:
1.The accused acted dishonestly by acting without any belief that Aksavest was legally entitled to make a debit note describing costs payable as related to marketing and other expenses in the amount of $79,502.00 or any amount.
2.The accused acted with a view to gain for another, namely Mr Abdul Kayum Syed Ahmad (Kayum).
3.The accused concurred in the making in the debit note of an entry which was false in a material particular by:
a.conveying his agreement by email and other inferred communications;
b.conveying instructions to Kayum as to the making of the debit note;
c. receiving the debit note from Kayum; and
d. transmitting the debit note to Securency Pty Ltd for payment.
4.The debit note was made or required for an accounting purpose in that the debit note was required as the basis for the payment of money by Securency Pty Ltd.
It was by reference to this charge and those particulars that Mr Gerathy pleaded guilty to the charge.
The circumstances of the offending are that, in the mid-1990s, the Reserve Bank of Australia (‘RBA’) was involved in establishing two companies, Securency International Pty Ltd (‘Securency’) and Note Printing Australia Pty Ltd (‘NPA’). Securency is engaged in the business of manufacturing special plastic film (polymer substrate) upon which banknotes are printed. NPA is engaged in the business of printing those banknotes. The companies use new Australian technology that is in high worldwide demand.
A feature of the technology is that banknotes printed on the polymer have a long life. Therefore the companies have insufficient business in Australia to keep them engaged in ongoing commercial activity. To fill the gap, in the late 1990s, they looked for offshore business opportunities, including in Malaysia. The corporate and marketing methods that were used, or allegedly used, by the companies to create and pursue these opportunities have given rise to substantial criminal proceedings in relation to various individuals, which are ongoing. Mr Gerathy is very much a minor player in this drama.
Mr Gerathy is a bank officer who was a long term employee of the RBA from 1969 until he was seconded to NPA in 2000 and later to Securency. Between 2003 and 2010 he was a senior director of business development of Securency, which was a sales position, although an important one, in the middle-management of the company. He was dismissed from this position in 2010 by reason of the criminal offending to which he has now pleaded guilty. He has not worked since.
Although the offending is evidenced by a large number of email and other communications passing between Securency and others, for present purposes it may be more simply explained.
To facilitate ongoing business in Malaysia with the Central Bank of Malaysia, known there as Bank Negara Malaysia (‘BNM’), Securency and NPA engaged a local agent in that country. His name is Abdul Kayum Bin Syed Ahmad. Known simply as Kayum, he operated through a Malaysian company called Aksavest Svn Bhd (‘Aksavest’). This is the company referred to in the indictment.
The commercial relationships between Kayum and his company on the one hand and Securency and NPA respectively on the other hand were governed by separate written agreements. The agreements specified that commission was payable to Aksavest by Securency or NPA by way of a success fee in respect of sales obtained for Securency or NPA respectively. In the early 2000s, Kayum successfully facilitated such sales and his company was paid substantial commissions by Securency and NPA.
In respect of Securency, one pertinent element of its commercial relationship with Kayum and his company was that commission was payable to Aksavest in respect of orders for plastic film that were placed directly with Securency by a customer or through the agent. Commission was not payable in respect of orders for printed banknotes using that film that were placed with NPA. This did not deter Kayum from placing commercial pressure upon Securency for the payment of commission in respect of orders for banknotes obtained for NPA, and the falsified debit note referred to in the indictment was a means of paying such a commission.
Mr Gerathy’s sales responsibilities took him to Malaysia where he had business contact with Kayum. He was not a personal associate of Kayum. Mr Gerathy’s role was to manage Securency’s commercial relationship with Kayum and his company, not to participate in his Malaysian activities. Mr Gerathy was himself managed by senior Securency personnel. He was not in an executive position. It does not do justice to his position to call him a messenger, but neither did he have executive authority.
It was in this context that, in September 2005, Kayum asked Mr Gerathy to obtain Securency’s agreement to pay Aksavest a 5% commission in respect of all banknote orders placed by BNM. It was Kayum’s view of the world that since the BNM banknotes were to be printed on film supplied by Securency, it should pay commission on banknote orders placed with NPA. Is not entirely clear how it came to be orally agreed between Kayum and Securency that such commission would be paid, but by about October 2005 it was so agreed. The agreement was authorised by executive staff much higher up the seniority chain than Mr Gerathy. It was an oral agreement to pay commission, not to reimburse expenses. In the scheme of things, the agent’s expenses were for the agent to cover in the ordinary course of the agent’s business.
In December 2005, Kayum informed Securency that BNM had approved the purchase of banknotes from NPA. The formal printing and supply agreement was entered into between BNM and NPA in March 2006. In April 2006, Kayum sought payment of a 5% commission from Securency in respect of this transaction, as ‘verbally agreed’. When the amount (about $80,000) was not paid, he pressed Mr Gerathy and others in Securency for payment. Mr Gerathy supported payment of the commission because it had been orally agreed. But senior management personnel high up in the chain of command were the decision-makers.
The problem was that those senior management personnel had gone cold on the idea of paying Kayum commission with respect to orders for the printing and supply of banknotes placed with NPA, rather than for orders for the supply of polymer placed with Securency. It is easy to see why, but this is not presently relevant. The oral agreement had been made, Kayum wanted to be paid his 5% commission and Mr Gerathy was waiting for Securency’s response. He had no authority himself to approve the payment and no authority to rescind or revise the agreement.
A pragmatic solution involving a lie was devised by senior management, who included David John Ellery, the chief financial officer, and another senior management officer. It was to pay the commission not as commission but for reimbursement of expenses. In July 2006, Mr Ellery informed Mr Gerathy by email that the amount payable was $79,502 (which was calculated upon the basis of 3% commission that was payable under the oral agreement). The other senior management officer gave instructions for this amount to be ‘paid against invoices for reimbursement of expenses in relation to his ongoing development of polymer in Malaysia’, which was the lie.
Believing that Kayum was entitled to the payment by way of commission but knowing that he was not entitled to the payment by way of reimbursement of expenses, Mr Gerathy implemented this shameful deceit. He told Kayum how to go about getting his money, which was to produce a false debit note claiming $79,502 by way of expenses, which he did. The debit note prepared and supplied by Kayum stated that the amount of $79,502 was payable for:
(a) marketing and promotional expenses ($40,000);
(b) seminars and meetings ($20,000);
(c) materials, lunches and dinners ($9,502); and
(d) accommodation and transportation ($10,000).
This false debit note was given by Kayum to Mr Gerathy, who gave it to Mr Ellery upon the basis that he — Mr Gerathy — supported making the payment (his formal payment support was required if payment was to be made by the accounts payable officer). The amount was paid to Kayum by electronic transfer in July 2006.
In circumstances that do not need to be recounted, the police began to investigate illegal conduct on the part of NPA, Securency and related companies in their overseas operations in the late 2000s. Some of the charges that were eventually brought against individuals concerned are very serious indeed and not yet resolved. As I have emphasised and will again, Mr Gerathy does not come into this category at all. He faces one charge of false accounting, to which he admitted the relevant facts in interviews with the police in May 2010.
While aspects of this interview appear to reflect Mr Gerathy’s faulty recollection of immaterial events, he maintained then as he maintains now that Kayum was owed the money that was paid under cover of the false debit note because he had earned it as commission under the oral agreement. Mr Gerathy told the police that he knew that Kayum was not entitled to the money by way of reimbursement of expenses. He said that the decision to pay the money upon this false basis was made by senior management, which it was, but that he implemented it, which he did.
It is necessary to say something about the elements of the offence of false accounting. The offence is created in s 83 of the Crimes Act 1958 (Vic), which provides:
False accounting
(1)Where a person dishonestly, with a view to gain for himself or another or with intent to cause loss to another—
(a)destroys, defaces, conceals or falsifies any account or any record or document made or required for any accounting purpose; or
(b)in furnishing information for any purpose produces or makes use of any account, or any such record or document as aforesaid, which to his knowledge is or may be misleading, false or deceptive in a material particular—
he is guilty of an indictable offence and liable to level 5 imprisonment (10 years maximum).
(2)For purposes of this section a person who makes or concurs in making in an account or other document an entry which is or may be misleading, false or deceptive in a material particular, or who omits or concurs in omitting a material particular from an account or other document, is to be treated as falsifying the account or document.
Having regard to the text of this provision and my ruling in CDPP v Gerathy (Ruling),[1] the elements of the offence of false accounting may be summarised as follows:
[1][2018] VSC 255 (18 May 2018).
(1)the accused falsified any account, or any record or document made or required for any accounting purpose;
(2)the accused did so dishonestly in the sense that the accused deliberately and intentionally made such a false accounting document knowing it to be false;
(3)the accused did so with a view to gain for the accused or another or with intention to cause loss to another; and
(4)in cases to which s 83(2) applies, the accused did so by concurring in the making by another of the false document as therein set out.
I reject the submission of the prosecution that the view of the accused to gain for the accused or another is not an element of the offence. It is, as I made clear in the ruling.
As explained in the ruling, the dishonesty element applies only to the falsification element. In respect of that element, where a claim of right is raised as a defence, it is sufficient for the prosecution to establish that the accused did not believe that he or she had a legal right to falsify the document. By his plea of guilty, Mr Gerathy has admitted that he had no such belief. As the dishonesty element does not apply to the intention to gain element, it is sufficient for the prosecution to establish that the accused falsified the document with that intention whether or not the accused honestly believed that the accused or another was legally entitled to the gain. By his plea of guilty, Mr Gerathy has admitted that he did have that intention to gain (in respect of another). In terms of criminal liability, it does not matter that the accused believed that the accused or another was legally entitled to the gain. Therefore, Mr Gerathy is guilty of the offence despite having believed that Kayum was entitled to the money paid by way of commission under the oral agreement.
However, in relation to sentencing, it is relevant to take into account as a mitigating consideration that Mr Gerathy believed that the intended gain was one to which Kayum was legally entitled, even if the means chosen to obtain that gain was the dishonest falsification of an accounting document. Among other things, this goes to the nature and gravity of the offending. It is also relevant to take into account, in relation to sentencing, that the falsification was done on the instructions of Mr Gerathy’s superiors, which goes to the degree of his moral culpability for the offending.
In this connection, I do not accept the submission of the prosecution that I should find that Mr Gerathy knew that Kayum (or Aksavest) had no lawful entitlement to the commission money that was paid by way of expense reimbursement. The documentary evidence clearly establishes that there was an oral agreement between senior Securency management and Kayum for the payment of 5% commission on banknote orders placed by BNM with NPA. It appears to have been unwise, embarrassing, commercially unethical and even improper for senior management to have entered into this agreement, but it was not submitted by the prosecution that it was illegal or invalid, and I have no basis for concluding that it was illegal or invalid.
Therefore, the nature of the crime that Mr Gerathy committed was (concurring in) making a false debit note for the payment of money by way of reimbursement of expenses that Mr Gerathy believed was due to Kayum by way of commission. It was not a falsification to obtain a gain that was not due at all. It was not a falsification to obtain a gain for himself but one to obtain such a gain for another. It was a falsification done on the instructions of his superiors. It was done to advance the commercial interests of Securency and not to advance Mr Gerathy’s interests.
Lest I be misunderstood, the offence of false accounting serves the fundamentally important purpose of protecting the vital interest of the community in ensuring honest accounting, that is, the accuracy, reliability and veracity of accounting documents, especially in relation to the operation of the economic and taxation systems. The material parts of the debit note that Mr Gerathy concurred in making were absolutely false in every particular. It passed off as expenses for which Kayum was entitled to reimbursement amounts that were not incurred as expenses at all and to which Kayum was not so entitled. It passed off as expenses amounts that were actually payable as commission under the oral agreement that senior Securency management had entered into but had become uncomfortable with. The debit note that Mr Gerathy concurred in falsifying concealed the true nature of the payment. Therefore, in determining his sentence, it counts only to a certain degree that he believed that Kayum was legally entitled to the payment anyway. The gravamen of the crime, which is false accounting, would be undermined if it were otherwise.
Arising out of the same events, two members of Securency senior management have been sentenced for the charge of false accounting. The first is Mr Ellery. The second I will not name but, in this sentence against Mr Gerathy, I have considered the sentence imposed upon this individual against the principle of parity.
Mr Ellery was sentenced by Hollingworth J to imprisonment for six months, wholly suspended for two years.[2] As the chief financial officer, Mr Ellery was in a significantly more senior position than Mr Gerathy and his moral culpability for committing the offence was therefore greater. He too pleaded guilty, but at an earlier stage than Mr Gerathy. He engaged in a cover-up of the payment in July 2007, in which Mr Gerathy did not engage.
[2]R v Ellery [2012] VSC 349 (20 August 2012).
Of general deterrence, Hollingworth J said:
General deterrence remains an important consideration in cases of white-collar crime; that is to say, there is a need to deter others from engaging in similar conduct. However, the need to deter others may be less significant in a case such as this, where the false accounting was not done for your personal financial benefit.[3]
Of the sentencing statistics, her Honour said:
The sentencing statistics and other cases concerning this offence, or similar offences, provide only limited assistance in sentencing you. Most of the cases of false accounting involve offenders creating false accounts either to cover up a theft, or to obtain a benefit (such as a loan from a bank) to which they would not otherwise be entitled. The sentences in such cases reflect the fact that the persons directly benefitting from the false accounting are the offenders themselves, or persons or companies closely connected to them.[4]
These remarks apply equally to Mr Gerathy’s case.
[3]Ibid [36].
[4]Ibid [52].
It has taken a very long time for this matter to come to court. The criminal process began in April 2010 when Mr Gerathy volunteered to attend and answer questions put to him by the Australian Federal Police on three separate occasions. Mr Gerathy was then charged in August 2011, over six years ago. There were then two counts, one of which was false accounting. There was a lengthy committal. It was entirely appropriate for him to test the evidence at that committal. Indeed, he was discharged in relation to both of the charges by the magistrate on the 93rd sitting day in 2014. However, Mr Gerathy was directly presented on one charge of false accounting in the middle of that year. That is the charge to which he has now pleaded guilty.
There was a significant delay in the prosecution of the charges. This was due to the connection between this criminal proceeding and other very extensive criminal proceedings that arose out of the overseas marketing activities of NPA and Securency. None of the delay has been caused by the defence. Indeed, there has been very strong cooperation between the defence and the prosecution in relation to preparing and bringing this proceeding on for trial. Mr Gerathy has been an unusually cooperative participant in the proceeding and I take this into account as a strong indication of remorse and his respect for the law and the legal process, despite the present aberration.
There was uncertainty and an absence of clear authority in Victoria in relation to the elements of the offence of false accounting. This legal uncertainty was resolved in this proceeding by the ruling that I made in relation to that issue (see above). In the light of that ruling and on the same day that it was delivered, Mr Gerathy indicated his preparedness to plead guilty to the charge of false accounting. Until that ruling was made, Mr Gerathy had a poor basis for making a sensible decision in relation to that plea. The uncertainty about the element of the offence went directly to the nature of the defence that he wished to advance in the trial.
Accepting that the plea of guilty was not made at the very earliest opportunity, I consider in all of the circumstances that it was more than a timely plea of guilty. It is a plea that has significant practical utility because it is now unnecessary for the trial to occur. More importantly, and taking into account the candid nature of Mr Gerathy’s admissions to the police and the strong degree of cooperation between the prosecution and the defence in the preparation and conduct of the proceeding, I think that it indicates a strong degree of remorse. Also so indicative is that he gave away an almost certain grant of leave to bring an interlocutory appeal to the Court of Appeal against the ruling.
In the six years that has passed since the charges were brought, Mr Gerathy has reflected upon his offending, and endured significant hardship that has been a kind of punishment in itself. As was said by Warren CJ and Redlich JA in Rodriguez v Director of Public Prosecutions (Cth):[5]
Delay is normally relevant in two ways. First, it is relevant to rehabilitation that has occurred during the delay and the effect that it has in turn on specific deterrence. Secondly, delay is relevant in the sense that the anxiety and uncertainty of having the prospect of a sentence hanging over one’s head during the period of delay is akin to punishment in itself.[6]
Both of these factors count in Mr Gerathy’s favour in the present case.
[5](2013) 40 VR 436, 445–6 [36].
[6] R v Merrett (2007) 14 VR 392, 400–1 [36]–[39]. See also Bourne v The Queen [2011] VSCA 159 (3 June 2011) [30]–[32].
Quite apart from the uncertainty associated with the resolution of the charges (from 2014, one charge), Mr Gerathy has since 2010 not been employed in any capacity, has suffered poor mental and physical health and has experienced personal shame and public humiliation.
In relation to Mr Gerathy’s employment, he is aged 67 years. He was a life-long employee of the RBA or its associated companies. I infer that public service has been his main motivation, not the pursuit of private gain. As I have stated, he concurred in falsifying the debit note to advance Securency’s interests, not his own interests. Participating in the falsification of the note has ruined his career at a time when finding alternative employment was likely to be difficult and has proved to be impossible. His working record has otherwise been exemplary.
In relation to Mr Gerathy’s health, the medical evidence presented at the plea hearing was extensive. Unfortunately, he was diagnosed in 2008 with cancer of the thymus and lungs, for which he has received surgery. The lung cancer reoccurred in 2013, and is inoperable. This will shorten, and reduce the quality of, his life.
Mr Gerathy has been treated by a clinical psychologist who has diagnosed him with a major depressive episode. She writes that the duration and extent of the media coverage of his case has been detrimental to his health. This is not to suggest that the coverage has been illegitimate. But, at the personal level, it has increased the level of the shame and humiliation he has experienced.
Mr Gerathy has no prior criminal history and has been an exemplary husband and father, and an upstanding member of the community. Sentencing principles establish that he should get full credit for his previous good character, to which a large number of references attest.
The character references fall into several categories. They come from Mr Gerathy’s wife (who was present in court with him at all times), children and other family members; from a large number of officials and members of the Maroubra Surf Life Saving Club and the Burning Palms Surf Life Saving Club, from various walks of life; and from former fellow employees of the RBA. All have attested to Mr Gerathy’s previous good character from the position of having full knowledge of the charge to which he has pleaded guilty. The picture presented is of a good man in every aspect of his life who has made one bad mistake that is completely out of character, and that is my judicial assessment.
One is still left, however, with the gravity of the offending and the strong need for general deterrence. Charles JA (Winneke P and Callaway JA agreeing) spoke of these considerations in DPP v Bulfin using words that apply equally to Mr Gerathy:
Such offenders usually have no prior criminal history, and indeed it is often this very fact which makes possible the commission of the crime, for such crimes are frequently committed by persons in a position of trust, which the possession of a criminal record would almost inevitably prevent them reaching. Discovery and punishment make it unlikely that the white collar criminal will re-offend, not least because the offender will probably never again be given the opportunity to do so. In these circumstances specific deterrence will often not feature largely in sentencing consideration, and the prospects of rehabilitation will generally be very high. A further matter is that, in the case of white collar crime, the lives of the offenders and their families will frequently have been devastated by the consequences of discovery and punishment. The present case is a very good example. It would be difficult not to feel great sympathy for the respondent's wife and family and, indeed, for the respondent himself. But I think there is a serious risk that the consequences of discovery and punishment, and the havoc that a custodial sentence usually wreaks on the lives of the white collar criminal and his or her family, may have a tendency to distract attention from the importance that general deterrence ought to carry in the imposition of sentences for crimes such as the present.[7]
It is by reason of the gravity of the offending and the importance of general deterrence that I am not prepared to impose a monetary penalty in this case, despite the strong mitigating circumstances and the high level of remorse that has been shown. Even accepting Mr Gerathy’s lesser role in the falsification of the document, a fine would not be an adequate response to the nature of the crime and the need for judicial denunciation.
[7][1998] 4 VR 114, 131.
The maximum penalty for this offence is imprisonment for 10 years. Despite the abolition of suspended sentences in 2013, as this offence was committed before 1 September 2013, a suspended sentence may be imposed in the present case[8] if the period of imprisonment does not exceed three years and the court is ‘satisfied that it is desirable to do so in the circumstances’, having regard to certain specified circumstances.[9] I am so satisfied having regard to those circumstances. In particular I am satisfied that a suspended sentence would represent adequate denunciation of the offence by the court, adequate deterrence of others and reflect the gravity of the offending, and that there is a minimal risk of Mr Gerathy offending during the period of the suspension.
[8]Sentencing Amendment (Abolition of Suspended Sentences and Other Matters) Act 2013 (Vic) s 7; Sentencing Act 1991 (Vic) s 149C(3).
[9]Sentencing Act1991 (Vic) ss 27(1), (1A) (prior to the repeal of these provisions).
On the charge of false accounting contrary to s 83 of the Crimes Act, Mr Gerathy will be sentenced to imprisonment for three months. I order that the whole of this sentence be suspended for a period of six months. This means that Mr Gerathy will not be taken into custody today. However, if during that six month period of suspension, he commits another offence which is punishable by imprisonment (whether in or out of Victoria), it is very likely that he will be taken into custody to serve the whole of the suspended sentence of imprisonment for three months.
I declare, pursuant to s 6AAA of the Sentencing Act1991 (Vic) that, but for the plea of guilty, I would have sentenced Mr Gerathy to a total effective sentence of immediate imprisonment of four months.
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