R v Boulden

[2006] NSWSC 1274

CITATION:	R v Boulden [2006] NSWSC 1274
HEARING DATE(S):	13/11/06, 14/11/06
JUDGMENT DATE :	1 December 2006
JUDGMENT OF:	Whealy J at 1
DECISION:	In relation to the offence of being privy to the fraudulent altering of the books of the company, contrary to s 590(1)(c)(iii) of the Corporations Act 2001 (Cth), you are convicted. I sentence you to imprisonment for a term of 12 months, such sentence to be served by way of Periodic Detention. I decline to make a Recognizance Release order. I direct that the offender attend the Grafton Detention Centre, or such other Centre, as he may be directed to attend, by 4pm on Friday, 15 December 2006 (or at such other time and date as he may be directed), to commence serving his Periodic Detention.
CATCHWORDS:	Criminal practice and procedure - sentencing - Corporations Act - Corporate dishonesty - alteration of financial records - general deterrence - white-collar crimes - custodial sentence - guilty plea - Periodic Detention - unsuitability of suspended sentence
LEGISLATION CITED:	Corporations Act 2001 (Cth) Crimes Act (Commonwealth) 1914 Crimes (Sentencing Procedure) Act 1999
CASES CITED:	R v Glenister (1980) 2 NSWLR 597 R v Pantano (1990) 49 A Crim R 328 R v Halabi (unreported NSWCCA 17 February 1992) R v Corner (unreported NSWCCA 19 December 1997) R v MAK; MSK [2006] NSWCCA 381 R v Rivkin [2004] NSWCCA 7 at [423] R v Hodgson [2004] SASC 234 R v Karhani (1990) 21 NSWLR 370 at 377 R v Thomas (1997) 37 ATR 296 at 307 R v Thomson & Houlton [2000] 49 NSWLR 383 R v Bugeja [2001] NSWCCA 196 per Hodgson JA R v Simon [2003] 142 A Crim R 166 R v Otto [2005] 157 A Crim R 525 R v Rashid (NSWCCA unreported 7 April 1995) R v Zamagias [2002] NSWCCA 17 at paras [29-32]
PARTIES:	Regina v Antony Richard Boulden
FILE NUMBER(S):	SC 2006/756
COUNSEL:	Mr T. Game SC; Mr M. Wigney - Crown Ms E. Fullerton - Offender
SOLICITORS:	Commonwealth DPP Price & Roobottom (Queensland) - Offender

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
CRIMINAL LIST

WHEALY J

FRIDAY 1 December 2006

2006/736 - REGINA v Antony Richard BOULDEN

SENTENCE

1 HIS HONOUR: Antony Richard Boulden (to whom I shall refer as the offender) comes before me for sentence. On 2 June 2006, the offender pleaded guilty before Barr J in this Court to one count of being privy to the fraudulent altering of the books of a company contrary to s 590(1)(c)(iii) of the Corporations Act 2001 (Cth).

2 This offence carries a maximum penalty of two years imprisonment.

3 The relevant facts are, as might be expected, not without their complication. The Crown was represented in the sentence hearing by Mr Game of Senior Counsel and Mr Wigney. Ms Fullerton SC appeared for the offender. The parties came to a sensible agreement, which reflected itself in the presentation of an agreed statement of facts. It will be sufficient, accordingly, if I simply set out in this decision those agreed facts. They are as follows.

Statement of facts

“1. At all relevant times in 1997 and 1998 FAI Insurances Limited (“FAI”) was a publicly listed company. FAI was obliged to provide half-yearly consolidated results to the Australian Stock Exchange Limited (“ASX”) including its consolidated results for the half year ending 31 December 1997.

2. At all relevant times FAI General Insurance Company Limited (“FAIG”) was a wholly owned subsidiary of FAI. FAIG was a licensed insurer and conducted the majority of insurance operations on behalf of the FAI Group of Companies.

3. On 19 February 1998 FAI released its half yearly to 31 December 1997 consolidated results to the ASX. These results disclosed an operating profit before tax of $3.175 million. This operating profit was inflated by improper reductions to the liabilities of FAIG that occurred on 23 January 1998 and totalled approximately $5.5 million.

4. The Offender holds a Bachelor of Commerce in Accounting, Finance and Systems from the University of New South Wales. He commenced employment with FAIG in 1990 and on 1 September 1995 became the Financial Controller of the Corporate and Professional Insurance Division ("CPID") within FAIG, which operated out of premises in Kent Street, Sydney . Although the Offender resigned from FAIG on 9 December 1997, he withdrew that resignation shortly thereafter upon an offer of promotion and instatement into the position of Financial Controller New Zealand. A Contract of Employment was executed on 15 December 1997 but the position was not filled by Mr Boulden at any time thereafter due to the repeated postponement of his departure date at management’s direction. Whilst awaiting the transfer to New Zealand the Offender was transferred to the Management Information Division of FAIG located at Ryde, New South Wales. The Offender continued to act in the role of Financial Controller of the CPID during the relevant period and continued to be responsible for producing the CPID Monthly Management Accounts for the half-year end for December 1997. He requested that the improper reductions to FAIG’s liabilities be carried out on 23 January 1998.

RELEVANT PERSONNEL OF FAI GROUP OF COMPANIES

5. Rodney Adler (“Adler”) was a director of FAI and Chief Executive Officer of the FAI Group of companies. Timothy Mainprize (“Mainprize”) was a director of FAI, FAIG and the head of Finance and Administration of the FAI Group of companies. Mainprize reported to Adler.

6. At all relevant times Adler, Mainprize, Daniel Wilkie (“Wilkie”) and Ashraf Kamha (“Kamha”) were directors of FAIG. Wilkie reported to Adler.

INSURANCE OPERATIONS OF FAIG

7. Prior to November 1997, FAIG had the following two Insurance divisions:

(a) The General Insurance Division (“GID”). The GID underwrote retail lines or ‘short tail’ classes of insurance and was headed by Wilkie. The short tail classes of insurance included, for example, CTP “green slip” insurance.
(b) The CPID underwrote FAIG’s ‘long tail’ classes of insurance and was headed by Kamha. The long tail classes of insurance included professional indemnity, public liability, certain property and marine insurance, overseas insurance and a class of insurance known as ‘inwards re-insurance’.

8. The two Divisions were referred to in FAI’s accounts as “General Insurance”. In a restructure in November 1997 GID and CPID merged. Nevertheless during the period of time relevant to this matter, both GID and CPID continued to report internally as two Divisions.

9. Wilkie became Chief Operating Officer of the merged insurance business. Kamha was Managing Director of CPID and after the restructure reported to Wilkie. Whilst Wilkie had ultimate responsibility for the merged insurance business from late November 1997, Kamha had day-to-day responsibility for CPID. Both Kamha and Wilkie were responsible for CPID for the reporting period ended 31 December 1997.

FAI’S ELECTRONIC BOOKS OF ACCOUNT: CASE ESTIMATES, IBNRS AND IBNERS

At all relevant times insurance companies had an obligation to:

(a) Estimate the amount which would be required to meet outstanding insurance claims (“case estimates” but also referred to variously as the claims estimates, case reserves, claims reserves or reserves);

(b) Estimate claims which had been incurred but not yet been reported (“IBNR”); and

(c) Estimate an allowance for expected increases in case estimates for the reported claims referred to as incurred but not enough reported (“IBNER”).

10. The case estimates, IBNR and IBNER were required to be accounted for as an expense and liability of FAIG.

11. FAIG claims officers calculated the case estimates. The IBNR and IBNER were derived from calculations usually made or reviewed by actuaries.

12. FAIG maintained an electronic database, called AEGIS, to process and record premiums, payments, insurance details and outstanding case estimates. Once the case estimates, were determined by FAIG claims officers, they were entered into AEGIS by authorised staff.

13. The normal process to make an adjustment to an existing case estimate on AEGIS, where the adjustment was below $100,000 was by a case officer completing a File Action Request Form. Where the adjustment was above $100,000 it was by completing and having approved a Major Loss Report. Those increases above $100,000 but below $500,000 could be approved by the Deputy CPID Claims Manager, Ronald Shorter. Those increases above $500,000 but below $1 million could be approved by the CPID Claims Manager, Robert Spratt. Increases above $1 million required approval through Kamha.

14. CPID also conducted claims file reviews on an annual basis. The annual claims file reviews were conducted in the lead up to the end of the financial year at 30 June each year. In December 1997 there was a ‘mini’ claims file review directed at CPID claims exceeding $500,000. Any adjustments to existing case estimates arising out of such reviews were entered into AEGIS.

15. AEGIS data was interfaced to FAIG’s “Masterpiece” electronic general ledger (“the general ledger”) on a monthly basis. The case estimates data on AEGIS was not transferred to the general ledger on an individual claim basis, instead case estimates were transferred to the general ledger in aggregated batches determined by the type of insurance involved. Manual adjustments could be made to the general ledger with respect to the various aggregated case estimates. IBNR and IBNER were entered directly into the general ledger.
OFFENDER'S ROLE WITHIN CPID

16. The Offender was Financial Controller of CPID. He reported to Kamha on CPID matters but he also reported to Mainprize on financial matters. The Offender was responsible for consolidating the various underwriting results of CPID and posting those results into the general ledger, which was consolidated each month into the FAI general ledger. The Offender had authority to request that entries be made to CPID’s general ledger after it had been closed for the preparation of accounts. He was also responsible for producing the CPID Monthly Management Accounts.

17. Howaida Azer (“Azer”) was a Management Accountant in CPID and reported to the Offender. Azer’s responsibilities included preparing draft CPID Monthly Management Accounts. Azer provided the draft accounts to the Offender each month and discussed them with him. The Offender in turn provided the draft CPID Monthly Management Accounts to Kamha and Mainprize.

18. On approximately 3 to 4 occasions prior to February 1998, the Offender had instructed Azer to reduce the IBNR liability in the general ledger. On each occasion, the instructions had come after the Offender had met with Mainprize and / or Kamha to discuss the draft CPID results. Azer understood from conversations with the Offender that if Kamha or Mainprize “… did not like the result then … [the offender] … would be required to make adjustments improving the CPID result.”

19. Azer was concerned about these adjustments and on one occasion raised her concern with the Offender. The Offender told her “Don’t worry about it. We will reverse the journal for the next month. Whatever we do now will be reviewed by the Actuaries and it will all come out in the wash anyway.”

THE FINANCIAL PICTURE IN LATE 1997

20. The performance of the insurance operations of the FAI Group from July to December 1997 had steadily deteriorated with the exception of a spike in CPID results in September 1997.

21. Monthly Corporate Management Accounts were prepared for the FAI Group. These Accounts contained consolidated data from the business operations of the FAI Group, including GID and CPID.

22. The internal FAI Group Monthly Corporate Management Accounts for November 1997 (annexed and barcoded S01369337 ) showed:
(a) FAI Group year to date made an operating before tax loss of $72.329 million against a year to date budgeted profit of $4.642 million.
(b) General Insurance (both GID and CPID) made a year to date underwriting loss of $29.755 million against a budgeted loss of $16.749 million.
(c) The General Insurance underwriting result for the month of November 1997 was a loss of $5.716 million which was $3.691 million worse than the budgeted loss of $2.025 million.
23. It was noted in these Accounts that “The year to date underwriting loss for CPID is $9.209 million which is $8.214 million [worse] than the budgeted loss of $0.995 million”.

THE REDUCTIONS OF 23 JANUARY 1998

24. On 2 December 1997, the timetable for the production and then release of the FAI 31 December 1997 results to the ASX was circulated to a number of FAI officers, including the Offender. A copy of this document, barcode S01254062 , is annexed. The timetable recorded that 23 January 1998 was the final date that journal adjustments could be made to the general ledger for the month of December 1997.

25. On 15 January 1998 Azer prepared draft CPID results which identified a loss of $26.78 million. A copy of this document, barcode S01144145 , is annexed. Her practice was to provide draft CPID results and then discuss them with the Offender. It was Azer’s understanding that the Offender would usually discuss the draft CPID results with Kamha and Mainprize.

26. By 23 January 1998, the CPID staff who usually made adjustments to the general ledger, no longer had direct access to the general ledger. Access was limited for control purposes so that Marc Gross (“Gross”), Assistant Group Financial Controller of the FAI Group, could prepare the statutory accounts for the FAI Group.

27. At about 9.26 am on 23 January 1998 the Offender sent Gross an email which was copied to Kamha and Azer. A copy of this document, barcode S01144541 , is annexed. The email was headed “Dec 97” and the Offender wrote,

‘Please reduce the following case estimates in the Ledger

State 22 Liability	Entire balance $1.4m
State 21 PL	By $1m
State 22 Marine (OMM)	By 1.5m

Please reduce the following IBNR’s in the Ledger

State 13 Liability

By $1.6m

Total P&L mvt is $5.5m
Advice from Graeme King re PI reserves should be forthcoming ASAP.

All the adjustments should bring the result to under $20m.

Please advise Howaida when the journal (sic) are posted so that she can finalise the management accounts ready for the auditors next week.’

28. At about 9.32 am on 23 January 1998, Gross emailed the Offender to advise that he would arrange for the journals to be posted. Gross also asked “As a matter of urgency could you please provide explanation for these journals so that they can be attached to the journals.”

29. At about 10.50 am on 23 January 1998, the Offender replied to Gross, “Reduction in reserves due to claim review in December 1997 not processed (sic) in Aegis due to staff resourcing issues. Should be processed in AEGIS in January 1998.” A copy of Gross’s email and the Offender’s reply, barcode S01144156 , is annexed.

30. Gross then arranged for a number of entries to be booked into the general ledger in accordance with the instructions of the Offender. He assumed that the Offender had authority from Kamha and Mainprize to make the adjustments.

31. There was no proper basis for the adjustments requested by the Offender on 23 January 1998.

32. The Offender gave a false explanation for the reductions. There was no claim file review in December 1997 that would have formed the basis of the reductions, there was no shortage of staff that would have prevented entries being made in AEGIS at the appropriate time and no entries related to the reductions were to be made to AEGIS in January 1998.

33. The Offender’s intention in sending the email was to bring CPID’s underwriting loss for the half-year to under $20 million and thereby increase the FAI Group profit for the half-year.

THE EVENTS AFTER THE 23 JANUARY 1998 REDUCTIONS

34. Azer finalised the CPID Monthly Management Accounts for July to December 1997, which incorporated the improper reductions made to the general ledger and recorded a year to date loss of $19.676 million. A copy of these accounts, barcode S01436001 is annexed. The CPID Monthly Management Accounts were incorporated into the FAI Group Corporate Management Accounts for December 1997. A copy of these accounts, barcode SBA253090 is also annexed. The FAI Group Corporate Management Accounts for December 1997 showed:

(a) FAI Group year to date made an operating before tax profit of $3.175 million against a year to date budgeted profit of $5.927 million.
(b) General Insurance (both GID and CPID) made a year to date underwriting loss of $29.811 million against a budgeted loss of $20.149 million.
(c) The General Insurance underwriting result for the month of December 1997 was a profit of $.400 million, which was $4.644 million better than the budgeted loss of $4.244 million.

35. It was noted in these Accounts that “The year to date underwriting loss for CPID is $19.676 million which is $19.844 million worse than the budgeted loss of $0.168 million."

36. Mainprize approved the FAI Group Corporate Management Accounts for December 1997 to be included in papers provided to the FAI Board.

37. In early February 1998, the following financial statements for the half-year ending 31 December 1997 ("the half yearly financial reports") were prepared from information contained in the FAI general ledger:

(a) Appendix 4B (not equity accounted) Half Yearly report for FAI Insurances Limited
(b) FAI Insurances Limited Half-Year Financial Statements and Reports
38. The operating profit before tax for FAI reported in the half yearly financial reports was $3.175 million. This profit reflected the adjustments made to the general ledger on 23 January 1998.

39. Mainprize approved the half yearly financial reports prior to them being presented to FAI’s Board of Directors.

40. On 19 February 1998 there was an FAI board meeting. The FAI Group Corporate Management Accounts for December 1997 were tabled and discussed at the meeting. The Board also resolved to approve the half yearly financial reports together with a 3-page announcement to the ASX. The announcement referred to the FAI Group’s operating before tax profit of $3.175 million.

41. Without the 23 January 1998 adjustments totalling approximately $5.5 million made at the direction of the Offender, FAI would have recorded a loss of approximately $2.325 million. FAI would also have recorded additional liabilities of $5.5 million.

42. The half yearly financial reports and announcement referring to FAI’s profit were released to the ASX on 19 February 1998. A copy of this announcement, barcode SBA265071 , is annexed.

PERSONAL CIRCUMSTANCES

43. The Offender is 41 years old. He has no prior convictions.

44. The Offender’s remuneration from FAIG included the following:

(a) From October 1997 as Financial Controller of CPID, his total remuneration package was $111,500 per annum.
(b) From 15 December 1997 the Offender’s total remuneration package increased to $150,000 per annum in anticipation of his transfer to New Zealand.

45. In late 1998 HIH Insurance Limited (“HIH”) took over FAI. The Offender was made redundant by HIH in March 1999. HIH collapsed in March 2001.

46. There is no evidence that the Offender held shares in FAI or HIH.”

Further matters

4 The agreed facts refer to a series of attachments. I have not reproduced these because of their bulk. I have, however, read the attachments and taken them into account for the purpose of better understanding the agreed facts. The attachments form part of Exhibit “A”.

Chronology

5 It may be useful if I briefly mention the way in which the subject offence came to light and the history of the prosecution. As indicated at the outset, the offence occurred on 23 January 1998. HIH Insurances Limited (HIH) completed the acquisition of FAIG’s parent company FAI Insurances Limited in January 1999. Provisional liquidators were appointed to HIH on 15 March 2001. The company was formally placed in liquidation in August 2001.

6 Letters Patent were issued in August 2001 to the Honourable Justice Owen to enable him to conduct a Royal Commission in respect of the notorious failure of HIH. The offender himself gave evidence during this Royal Commission. Justice Owen’s Report was tabled in the Federal Parliament in April 2003. This led to the involvement of ASIC to establish a Taskforce to investigate matters referred to it by the Royal Commission and other matters considered appropriate.

7 Although the Royal Commissioner made no referral with respect to the conduct of the offender in relation to the subject offence, ASIC’s own investigation led to a situation where the offender was asked to participate in a record of interview. As he was entitled to do, the offender declined to so participate. This was in late 2005.

8 A court attendance notice was issued and served on the offender in October 2005. The matter first came before Downing Centre Local Court on 22 November 2005. Bail was granted on conditions that were agreed by consent.

9 On 28 March 2006, the offender, with the consent of the prosecution, waived his right to a committal hearing. The offender was then sent for trial in the Supreme Court, the proceedings to be mentioned in this Court on 5 May 2006. The matter was adjourned until 2 June 2006. On that day, the offender entered his plea of guilty to the charge in the indictment. Barr J stood the sentencing hearing over until later in the year. I was nominated as the sentencing Judge. At the same time Barr J directed that a report be obtained from the Department of Corrective Services in the nature of a pre-sentence report.

10 A pre-sentence report was tendered before this Court on 13 November 2006. It indicated (Exhibit “B”) the offender’s ability to meet a financial penalty and his suitability for a Periodic Detention Order. He was assessed, however, as unsuitable for a Community Service Order on the basis that he resided in Queensland.

Subjective circumstances

11 I turn next to consider the subjective case for the offender. He was born on 7 November 1964. This means he has in fact recently turned 42 years of age. He is married and has young children. Prior to this matter, he had no criminal record. At the present time he lives in Queensland and, as I understand it, his move to that State was in part related to the personal and professional difficulties he faced as a consequence of the subject offence and its publicity in the aftermath of the HIH catastrophe. The offender was educated in Sydney and obtained a Commerce Degree from the University of New South Wales. He worked in the insurance industry at FAI from approximately 1990 to 1999, at which time when he was made redundant. Prior to his involvement with FAI, he worked with H L B Mann Judd as a professional staff member between 1983 and 1988. Thereafter, he worked with Dexta Corporation Limited as chief financial officer before taking up his employment with FAI.

12 There are a number of testimonials before me which attest to the offender’s good character and his record of community involvement. These speak well of his general honesty, reliability and strength of character. They all suggest that the commission of the subject offence was completely out of character and may have been due to pressure placed on him at FAI during the relevant period. For example, a chartered account, Graham Woods, said in his reference: -

“I was shocked to hear that Tony had been charged with a criminal offence. I knew that he was under a lot of pressure at FAI during 1997 and 1998 and was struggling personally with the demands being placed upon him, but the offence is quite out of character for the friend I have known for more than 20 years.
Perhaps because of my background as an accountant, I understand the stressful position Tony was placed in at FAI. I know that Tony is reluctant to challenge authority, and that he had a high regard for his mentor, Tim Mainprize, and that when directed to perform a task his initial reaction is to do so. Loyalty is also one of Tony’s strongest characteristics and I suspect that he felt obliged or pressured to act as the company wanted”.

13 There is another telling testimonial from Bob Wheeldon who worked with the offender at FAI for a period of time. Mr Wheeldon said: -

“9. FAI had an extremely small head office with minimal middle management and junior management reporting straight through to directors. I think this encouraged a yes mentality by the younger staff who did not have sufficient authority to challenge older staff. The capacity to report through to directors gave junior management the impression of seniority which really did not exist.
10. In my opinion, FAI directors did not value independent critical thinking by junior management. For instance, I was heavily criticised by Rodney Adler for negative comments I made in 1993 in relation to Brad Cooper and FAI security, which I copied, to a number of directors and senior management”.

14 Mr Wheeldon attached to his reference a copy of a memorandum from Mr Adler to himself dated 29 July 1993 which bears out, only too well, the criticism suggested by Mr Wheeldon.

15 In all other respects, the testimonials reflect the fact that, partly as a consequence of the commission of this offence, the offender has been virtually forced out of the insurance business. He has had to find, with some difficulty, other avenues for earning an income to support himself and his family. The testimonials also speak of the offender’s shame and embarrassment as a result of the commission of the offence, his contrition and his recognition of the mistake he made in the role he played in misleading the market and shareholders of the insurance company.

Objective criminality

16 In my opinion, the objective criminality involved in the present offence is at a not insignificant level. Indeed, it was not suggested by Ms Fullerton SC, in her helpful and thorough submissions, that the position was otherwise. The offender was in a responsible middle management position. He had the ability to give instructions and take steps that could, in the ultimate, affect the material that was to be published and given to the Stock Exchange in due course. The e-mail he composed on 23 January 1998, and sent to Mr Gross, was plainly his own work, although it is true he may have been acting at the direction of or prompting of others. But the creation of the document itself was clearly his own work. The fraudulent nature of the exercise is illustrated by the fact that on 23 January 1998, he again e-mailed Mr Gross and lied to him about the reason for the alteration to the journals. (See paras 29 and 30 of agreed facts).

17 On the other hand, it is clear that, apart from “hanging on” to his own position with its well paid salary, the offender did not stand to gain personally in a financial manner from the creation of the fraudulent document. It is to be supposed that he might have refused to carry out the prompting of his superiors; and that accordingly his moral culpability lay in his inability to refuse to be the architect of the fraudulent alteration. But, in truth, his moral culpability is at a rather higher level than this: the offender was in a middle management position with a direct capacity to alter the recorded estimates. He had subordinates who answered to him. As I shall later discuss, he would not have been unaware of the likelihood of the ultimate placement of the altered figures into the FAI Group Corporate Management Accounts and the half yearly financial reports for the FAI Group. It was precisely because of the position he occupied that those who prompted, invited or directed him to the commission of the criminal act chose him for the task. The offender would not have been unaware of this, particularly as there had been earlier instances of executive interference followed by alterations (see paras 18 and 19 of the agreed facts). There was plainly a culture of dishonesty at the company. Regrettably, the offender became infected by that culture and corrupted by it.

Submissions of the parties

18 The Crown has submitted that, given the nature and circumstances of the offence, a sentence of fulltime custody is the most appropriate sentence in relation to the offence. This is particularly so because of the presence of what were described as aggravating features of the offender’s conduct. They were, so it was submitted, the following: -

(a) The offender occupied a senior position in a significant public company

(b) The offender knew and intended that the false entry in the ledger that he caused to be made would directly lead to a false reduction of FAIG’s underwriting loss for the year ended 31 December 1997 of about $5.5 million. The offender also knew and intended that, when consolidated with the accounts of FAI Insurance Limited, this would directly lead to a false increase in FAI’s profit of about $5.5 million, thereby converting what would have been an overall loss for that period into a small profit.

(c) The offender knew that the false profit figure for FAI would be released to the market, with the consequence that the market would receive materially false information about a significant publicly listed company; and

(d) The offender lied to other employees of the FAI Group of Companies about the reasons for the false entries.

19 As to the first matter, the Crown submitted that the offender played a central role in effecting the fraudulent alterations. As Financial Controller of the CPID, the offender was responsible for consolidating and posting CPID’s underwriting results into the general ledger. In that capacity, he had the authority to request late entries to be made to the general ledger. The fact that he sent the request for alterations knowing that the request had no proper basis, and then gave a false explanation about it, leads to the conclusion that he played a role in planning, and a significant role in implementing the alterations.

20 In relation to the second and third matters, the Crown concedes that the offender was not responsible for FAI’s accounts or the announcement being made to the Australian Stock Exchange concerning FAI’s profit. But, the Crown submits, the only reasonable inference is that at the time the offender engaged in the conduct, he must be taken to have known that it would affect the accuracy of FAI’s announcement to the Stock Exchange. He must be taken to have known that the purpose of the adjustments was to improve the results that FAI was to announce to the market at year-end. The matters supporting this submission, according to the Crown submission, are the offender’s formal qualifications, his professional experience, his executive position as CPID’s Financial Controller; and that he had been specifically informed that FAIG’s accounts would be incorporated into FAI’s Group accounts for the half-year ending 31 December 1997 and be released to the Stock Exchange. This last matter, the Crown argued, appears clearly from the timetable for the consolidation of accounts and the finalisation of the ASX announcement which are contained in a memorandum sent to a number of people within the organisation, including to the offender himself.

21 Although the Crown submitted that a sentence of fulltime custody was the most appropriate sentence in all the circumstances, the Crown submitted that any sentence less than actual custody of one kind or another would be entirely inappropriate. The Crown’s general stance had, as its pillar of support, the contention that general deterrence was the most significant consideration in the exercise of the present sentencing discretion. The Crown argued that, anything less than either fulltime imprisonment, or at the very least, periodic detention, would send entirely the wrong message to the business community.

22 In this regard, the Crown stressed the important role that general deterrence must play in sentences for white collar crime, particularly those involving breach of trust (R v Glenister (1980) 2 NSWLR 597; R v Pantano (1990) 49 A Crim R 328; R v Halabi (unreported NSWCCA 17 February 1992); R v Corner (unreported NSWCCA 19 December 1997) and R v Rivkin [2004] NSWCCA 7 at [423]).

23 On the offender’s behalf, Ms Fullerton SC submitted that the outcome of this sentencing exercise was, in some respects, a difficult one and was finely poised. In that respect, the Crown generally agreed.

24 Ms Fullerton’s primary submission was that the Court should consider imposing a suspended sentence in the present matter. In other words, Ms Fullerton acknowledged that the Court might properly come to a conclusion that, having considered all other available sentences, no sentence other than imprisonment was appropriate in the circumstances (s 17A of the Crimes Act (Commonwealth) 1914). On the other hand, Ms Fullerton argued that of the three types of imprisonment available, namely fulltime custodial sentence, periodic detention or suspended sentence, the third option would be the most appropriate. (I should add that I have used the expression “suspended sentence”, as did the parties as a term of convenience. Strictly speaking, the correct order falls within the rubric of a recognizance release order (s 20(1)(b)).

25 The three matters relied upon by Ms Fullerton as warranting such an approach were these: first, the fact that the offending occurred in January 1998 but was first charged in November 2005. In this regard, Ms Fullerton was careful to submit that the penalty in this case should not, in the strict sense, be mitigated by delay. Ms Fullerton did not suggest that there had been an unacceptable delay on the part of the prosecuting authorities. With that qualification I entirely agree. The point made by senior counsel, however, was that, throughout this long period of many years, the offender had entirely rehabilitated himself to such an extent that it could legitimately be said that there was no possibility of any further offending.

26 The second point made by Ms Fullerton was that there were, in fact, no features of aggravation such as to place this offender in a serious category and to place his offending in a serious class of offending. Ms Fullerton took issue with the Crown’s four separate features of aggravation and argued that they were not of such quality as to aggravate the outcome as the Crown had argued.

27 I accept that Ms Fullerton’s first point has some substance in it. The offender was 33 at the time of the commission of the offence. He had an unblemished record prior to that time. He is now 42, as he comes before the Court for sentence, and there is no suggestion that he has been guilty of any criminal conduct since early 1998. The delay in prosecuting arose because of the complexity of the HIH Royal Commission and because of the natural and entirely reasonable delay that followed upon the publication of the Commissioner’s report. The ASIC investigators had many avenues to follow and there can be no criticism of the fact that a number of years passed before the decision to prosecute was made in the present matter. As I have made clear, Ms Fullerton has not advanced any submission critical of the investigating process or the prosecution. Rather, she points to the fact that the passage of many years has resulted in a situation where the offender’s position has changed significantly so as to demonstrate, beyond doubt, his complete rehabilitation.

28 In relation to Ms Fullerton’s second point, it will be necessary to examine each of the four allegedly aggravating features.

29 As to the first feature, Ms Fullerton argued that the position occupied by the offender was somewhat more limited than the Crown had submitted. For example, it was pointed out that the offender was the Financial Controller of only one of the two divisions within FAIG, namely the Corporate Professional and Insurance Division. He played no role at all in respect of the General Insurance Division. He was not even a manager of his division, nor did he exercise any executive responsibilities. He had no responsibility or authority in dealing with the external accountants or auditors.

30 In particular, Ms Fullerton argued that the offender was not the architect of the decision to manipulate the underwriting loss. There was no evidence, for example, that he was consulted about that matter or expressed any views about it himself or contributed to any decision that the alteration be made. Rather there is, by inference, evidence to suggest that he may have been prompted or directed to take the steps he did. Senior counsel pointed to the facts in paras 18 and 19. These relate to three or four earlier occasions where the offender had instructed his subordinate to reduce the estimates in the general ledger. Of course, the offender is not charged with any offence in relation to any of these earlier occasions and does not fall to be punished in any respect for them. They do, however, provide some insight into the culture of dishonesty which plainly pervaded the company at the relevant time. As the facts indicate, the instructions to make these changes came after the offender had met with Mr Mainprize and/or Mr Kamha to discuss the draft CPID results. If either of those gentlemen did not like the result, then the offender would be required to make any adjustments improving the result. A further indication of the situation appears in para 30 of the agreed facts where Mr Gross made an assumption that, in relation to the January alterations, the offender had authority from the Messrs Kamha and Mainprize to make the adjustments.

31 The resolution of this difference between the parties carries with it some advantage for each side. On the one hand, Ms Fullerton is plainly correct in indicating that the offender was not the architect of the decision to set in train the alteration of the records. Secondly, it is true that he was prompted, if not directed, by his superiors to take the action he did. Thirdly, his role in the company is correctly stated as being middle management rather than senior executive. On the other hand, as I indicated in an earlier statement in these reasons, it was precisely because of the position that the offender occupied that he was chosen for the task entrusted to him. His criminality lies in the fact that he did not resist the urgings of his superiors but went along with them, no doubt influenced by the general culture of dishonesty within the corporate group. Additionally, he was, at least, the architect of the means by which the alteration to the record was to be effected. It was precisely because of the position he occupied that he was able to set the ball rolling towards the later significant alterations in group accounts and the subsequent notification to the Stock Exchange.

32 This brings me to the second point. Ms Fullerton rightly pointed out that the offender had no role or any interest in the achievement of a particular quantifiable profit over and above the bottom line. Moreover, the offender had no role to play at all in ensuring that, from an accounting perspective, the outcome set in train by his actions would be achieved. Ms Fullerton submitted that there is no evidence that Mr Boulden could have known, as at 23 January, how the alteration to the ledger would ultimately impact upon the performance of other business and operations of other entities in the group.

33 Ms Fullerton argued that the offender did not know and intend that the false profit figure for FAI would be released to the market, that is that the market would receive materially false information about the affairs of the public company. At most, Ms Fullerton argued, the offender may have contemplated that there would be an overall conversion from loss to profit but that was the extent of his state of mind. In my view however, matters two and three do contain matters of aggravation for this offence. I am satisfied beyond reasonable doubt that the offender knew that the alteration he directed would be likely to be reflected in false profit figures released to the market. For example, the memorandum (S01254062 dated 2 December 1997) from Rachael Kenna is in the following terms: -

“It is planned that the half yearly release to the FAI Insurance Group to the Australian Stock Exchange will be finalised by 4 February 1998. The following items will be reported:
1. Consolidated profit and loss result for the six months ending 31 December 1997;
2. The consolidated balance sheet as at 31 December 1997;
3. Consolidated statement of cash flows.
Based on the completion date of 4 February 1998, a timetable has been prepared detailing the tasks required and persons responsible. If you foresee any problems, I would be grateful if you would contact me as soon as possible.
Rachael Kenna”.

34 At the foot of this memo there is note initialled by Mr Kamha and dated 4 December 1997. It is in these terms: -

“Tony Boulden,
Pls discuss”.

35 The distribution list for this memo includes the name of “Tony Boulden”. The timetable annexed to the memo indicates that the offender’s specific task was to provide draft CPID results to head office by 12 January 1998. Further details in the timetable, which would have been seen by the offender, make it clear that these matters would flow through to the ultimate preparation of consolidated results and consolidated balance sheet. They would flow through as well to the finalisation of corporate accounts and the preparation and delivery of a Stock Exchange release.

36 In my view, there can be no doubt whatsoever that the offender would have known that, by making a reduction of $5.5 million, there would be a direct effect flowing through the accounts to the Stock Exchange release. The offender plainly would have expected, or at least contemplated, that the alteration that he was making would directly lead to a false reduction of the underwriting loss for the half-yearly period. In turn, he would have contemplated and understood that, when consolidated with the accounts of FAI, this would directly lead to a false increase in FAI’s profit situation.

37 In relation to the final matter, Ms Fullerton submitted that the lies told by the offender to Mr Gross were part of the fraudulent alteration, that is an element in the offence itself, and should not be assessed as a separately aggravating feature. I agree with that submission. The lie, however, may be taken into account as part and parcel of the assessment of the seriousness of the criminal behaviour involved, although it does not, in my view, separately aggravate the criminality.

38 In all, what is revealed, I think, is an offence that falls comfortably into the mid-level range of seriousness. It is not the most serious offence of this kind but, as Ms Fullerton conceded, it is certainly a serious offence.

39 The third matter relied upon by Ms Fullerton is her argument that the situation in the case of R v Hodgson [2002] SASC 234 should be distinguished from the present matter. The defendant in that case was a senior finance executive of the Harris Scarfe Group. He pleaded guilty to making and procuring false entries in the accounts of the company. The offences were numerous and committed over a period of about three to four years. Hodgson’s sentence was reduced by the operation of s 16G of the Crimes Act 1914 and as a result of his assistance to authorities. He received an overall effective sentence of five years and six months with a non-parole period of two years and nine months. Debelle J, with whom Doyle CJ and Williams J agreed, held that the sentence of eight years which the Judge fixed as his starting point was, in all the circumstances, a merciful sentence. Debelle J said at [25}

“Employees of companies holding office at this level of seniority, like directors, have a social and moral obligation, as well as a statutory obligation, to act honestly and responsibly. A great trust is imposed in them by directors, shareholders and creditors alike. Their actions have the capacity to affect many, especially shareholders and creditors. It has the capacity to affect staff who may lose employment because of false accounting. Dishonesty of this kind has the capacity to undermine confidence in published accounts and in the integrity of commercial dealings. Sentences of this kind of offending must, therefore, reflect a significant element of general deterrence.”

40 Ms Fullerton argued that these comments must be seen in the context of the facts relevant to the sentencing exercise involved in that case. The points of distinction made by Ms Fullerton in relation to the facts were these: first, Hodgson was primarily responsible for the preparation of the financial accounts for the entire group whereas Mr Boulden was not. Secondly, Hodgson faced 32 counts altogether and the offending conduct was over a significant number of years. Moreover, the Court in South Australia did not accept Hodgson’s claim that he had been pressured by one of the directors into making the alterations.

41 I agree with Ms Fullerton that there are some marked points of distinction between the facts in the Hodgson matter and those in the present situation. But, as a general statement, Debelle J’s remarks have a wide application and extend to the situation in which the offender found himself here. I also agree with Debelle J that sentences for the kind of offending that was involved in Hodgson’s case and, for that matter in the present case, must, appropriately, reflect a significant element of general deterrence.

Commonwealth sentencing principles – statutory background

42 The sentence to be imposed upon the offender for the offence against the Corporations Act, being a Commonwealth Statute, is to be determined in accordance with Part 1B of the Crimes Act 1914 (Cth). Section 16A(2) of the Crimes Act provides a “check list” of the matters which the Court must take into account in the sentencing of Federal offences. It is common ground between the parties that this is not a catalogue of considerations, exclusive of other relevant considerations. In this regard, the consideration of general deterrence, a matter of particular significance in the present matter, must also be taken into account in determining the appropriate sentence, even though that matter is not mentioned in the relevant section (R v Karhani (1990) 21 NSWLR 370 at 377; R v Thomas (1997) 37 ATR 296 at 307).

43 As I have said, the element of general deterrence is always important in white-collar crimes. It is of course, an important part of the sentencing process in all crimes. It is, however, an especially important matter in crimes such as the present because of the need to mark out to employees of companies who hold office at the level of seniority of the offender that they have a social and moral obligation, as well as a statutory duty, to act honestly and responsibly. An important reason why this is so relates to the oft-remarked difficulty in detecting and investigating white-collar crime.

44 In determining the appropriate sentence, the Court must have regard to the nature and severity of the conditions that may be imposed on, or may apply to the offender, under that sentence: s 16A(3). In addition, the principle of prison as a last resort is embodied in s 17A(1) of the Act.

45 I have concluded, as the parties tacitly agreed I should, that in the present matter, having considered all other available sentences, no sentence other than imprisonment is appropriate in the circumstances. The reasons are these: first, the offence itself is a reasonably serious one, as I have explained. The maximum penalty itself, although not high, reflects the intention of Parliament that an offence of this kind should not be regarded as trivial or unimportant. Secondly, the level of criminality involved in the commission of the offence was at a reasonably high level. I have described it as mid-level seriousness. Thirdly, although the offender, I am satisfied, will not offend again, there is a need to reflect the aspect of general deterrence.

46 There are a number of matters which require, however, a considerable degree of discernment relevant to the appropriate term to be imposed. There is, first, the fact of the plea entered by the offender. The circumstances I have outlined indicate that the offender would be entitled to a reasonably generous discount for the utilitarian value of his plea and the fact it represents a willingness to facilitate the course of justice. The range of discount available for an early plea in relation to a State offence is discussed in R v Thomson & Houlton [2000] 49 NSWLR 383. Although that range was not expressed in that case as applying to Commonwealth offences, it appears to me to be not unreasonable to adopt an approach in similar terms (R v Bugeja [2001] NSWCCA 196 per Hodgson JA (with whom James and Adams JJ agreed on this point) at[28]; see also R v Simon [2003] 142 A Crim R 166 and R v Otto [2005] 157 A Crim R 525).

47 Given the history of the entry of the plea, I would consider that, were a discount to be allowed, the offender would be entitled to a discount of 25%. As I shall mention later, an early plea may, however, be reflected in the sentencing process otherwise than by way of a discount applied to the term of the sentence.

48 Other matters required to be taken into account are the offender’s general statements of remorse and contrition. While it is true that the offender has not given evidence before me, I see no reason to refrain from taking into account the expressions of remorse he has made to his friends and business acquaintances, as evidenced in the testimonials presented on his behalf. This is also reflected in the fact that he has not committed any further offences of any kind since 1998. It is proper to take these matters into account although, as the authorities have observed on a number of occasions, white-collar crimes are frequently committed by persons of previous good character and by persons who have no previous convictions. (R v Rashid (NSWCCA unreported 7 April 1995). While remorse and contrition are appropriate matters to be taken into account, they do not require, at least in this case, a precise mathematical calculation or evaluation (R v MAK; R v MSK [2006] NSWCCA 381.

Imposition of a sentence

49 What sentence then should be imposed? Both the Crown and offender’s side agree that this is a finely balanced matter and is, for that very reason, a difficult discretionary decision to make. In my view, leaving aside for the moment the issue of a discount for an early plea, the appropriate term of imprisonment is for a period of twelve months. In view of the offender’s good record and his undoubted rehabilitation, there is no need to make a recognizance release order. In addition, there is no need to impose a fine and indeed, the Crown does not suggest that a fine be imposed.

50 The one matter which does, however, require a high degree of consideration relates to the decision as to whether any of the available alternatives to fulltime imprisonment should be utilised in the circumstances of this matter.

51 Ms Fullerton argued strongly for the imposition of a suspended sentence. In my view, such an order would entirely fail to recognise the need to stress the aspect of general deterrence in relation to this offence. The imposition of a suspended sentence would, I agree with the Crown’s submission, send entirely the wrong message to the business community. It would not only appear inadequate, it would, in fact, be inadequate. In general terms, the real bite of general deterrence takes hold only where an actual custodial sentence is imposed. As Howie J pointed out in R v Zamagias [2002] NSWCCA 17 at paras [29-32], the question as to whether any particular sentencing alternative, including a suspended sentence, is an appropriate or adequate form of punishment must be considered on a case by case basis, having regard to the nature of the offence committed, the objective seriousness of the criminality involved, the need for general or specific deterrence and the subjective circumstances of the offender. Here, there would be little achieved by the suspension of a sentence so far as the rehabilitation of the offender is concerned. This is because he is already fully and entirely rehabilitated. This is another reason why I consider that the suspended sentence alternative is not appropriate in the present matter.

52 The task that remains to be determined is whether fulltime imprisonment is appropriate or whether periodic detention may be the more appropriate.

53 In my view, there is justification for selecting an alternative to fulltime imprisonment in the present matter. It is my view that the important aim of general deterrence will be preserved if the sentence to be served by the offender is served by way of periodic detention. In all the circumstances of the present offence, periodic detention will reflect adequately the objective seriousness of the offence and fulfil the manifold purposes of punishment. I am conscious that in choosing this alternative to fulltime custody, I am choosing a sentence that is more lenient than fulltime custody. Nevertheless, I am satisfied that such a sentence would, as I have said, be adequate so as to reflect appropriate recognition of the objective seriousness of the offence while, at the same time, attenuating the punishment so as to take account of the offender’s strong subjective case, especially in relation to his demonstrated rehabilitation over a period of many years. He is, as I have said, quite unlikely to ever offend again. I also take into account that the criminality in the present offence is at mid-level rather than at the higher-level; and that the offender’s criminal actions were taken at the prompting, invitation or direction of others more senior than he in the organisation. Finally, I have regard to the offender’s plea and his clear willingness to facilitate the course of justice. As Spigelman CJ noted in Thomson at [156], there are some cases where the “discount” for plea, otherwise available, will be reflected in a step down in the hierarchy of sentencing options. This is such a case.

54 Notwithstanding that the offender has been shown leniency in this regard, I intend that the sentence I am about to impose should send a clear message to those in the business community that the Court will not tolerate offences of this kind.

55 As I have indicated earlier, the pre-sentence report confirms the suitability of the offender for a Periodic Detention Order. He has signed an undertaking as required by the Crimes (Sentencing Procedure) Act 1999.

56 Antony Richard Boulden, you have pleaded guilty to an offence of being privy to the fraudulent altering of the books of the company, contrary to s 590(1)(c)(iii) of the Corporations Act 2001 (Cth).

57 In relation to that offence, you are convicted. I sentence you to imprisonment for a term of twelve months, such sentence to be served by way of Periodic Detention. I decline to make a recognizance release order.

58 I direct that the offender attend the Grafton Detention Centre, or such other Centre, as he may be directed to attend, by 4pm on Friday, 15 December 2006 (or at such other time and date as he may be directed), to commence serving his Periodic Detention.

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