Commissioner of Police v He
[2015] NZHC 777
•21 April 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-3159 [2015] NZHC 777
IN THE MATTER of various applications under the Criminal
Proceeds (Recovery) Act 2009
BETWEEN
COMMISSIONER OF POLICE Applicant
AND
LE HE
First RespondentFANG YU
Second Respondent
Hearing: 3 June and 1 August 2014; further submissions received on 1
December 2014
Appearances:
R Thomson for the Applicant
T Cooper for the RespondentJudgment:
21 April 2015
JUDGMENT OF ELLIS J
This judgment was delivered by me on Tuesday 21 April 2015 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
R Thomson, Meredith Connell, Auckland
R Mansfield, Barrister, Auckland
T Cooper, Barrister, Auckland
COMMISSIONER OF POLICE v HE [2015] NZHC 777 [21 April 2015]
Introduction
[1] The Commissioner applies for asset and profit forfeiture orders against the two respondents under the Criminal Proceeds (Recovery) Act 2009 (the Act). The background is, briefly, as follows.
[2] In April 2011, a storage unit rented by Mr He was found to contain 10.3 kg of ContacNT, $61,000 cash and a number of gift bags of the kind sold at a shop run by his wife.1 Mr He’s fingerprint was on the plastic bag containing the ContactNT. At Mr He’s home, a further $4,430 cash and the same types of gift bag were found.
[3] Mr He subsequently pleaded guilty to one charge of possession of pseudoephedrine for supply and, in November 2013, he was convicted and sentenced to 12 months’ home detention and six months’ community work.2 The basis upon which this sentence was imposed was articulated in the sentencing indication given by Judge Crosbie on 5 November 2013 as follows:3
[3] There is no dispute between Mr Mansfield and the Crown that the accused is, apart from the current offending, otherwise of good character. He has no previous convictions. His culpability is limited to that of a custodian of the drugs and the cash. The case in this respect is different to many of the authorities in that there is no evidence in the nature of texts, documentary or other evidence that link the accused to the importation or actual sales. Mr He, of course, is deemed to have had the drugs for supply by virtue of quantity. The only matter outside of the content of the box in the storage unit is the presence of Glad snap lock bags in a drawer in the accused’s kitchen. However, in terms of the photographic evidence, the submission made by Mr Mansfield, and the Crown for today’s purposes does not disagree, that on their own and in the kitchen environment, it could not be inferred that the bags were for the purposes of distribution of the precursor substance.
[4] So in short the Crown’s position on Mr Mansfield’s detailed submissions is that it accepts the characterisation of the accused storing the drugs for another party. …
[4] Mr He has no previous convictions. No charges of any kind have ever been
laid against Mr He’s wife, Fang Yu (the second respondent).
1 This quantity of ContacNT has a street value of approximately $500,000.
2 At the time of Mr He’s offending pseudoephedrine was a Class C drug. The maximum available penalty for a deemed supply case was 8 years’ imprisonment.
3 R v He DC Auckland CRI-2011-004-6432, 5 November 2013.
The application
[5] Some months prior to Mr He’s sentencing, on 14 June 2013, the Commissioner filed in this court the present application for forfeiture under the Act. The basis for the application was that a Police investigation into the respondents’ financial position is said to show that they had significant “unexplained income” during the period April 2006 to April 2011.4 The Commissioner says that an inference can be drawn that this income is attributable to the respondents’ supply of pseudoephedrine during this time.
[6] The application seeks:
(a) asset forfeiture orders pursuant to s 50 of the Act; and
(b) profit forfeiture orders pursuant to s 55 of the Act.
[7] The asset forfeiture application relates to the cash found at the storage unit
and at the respondents’ home, which the Commissioner says is “tainted”.
[8] The profit forfeiture application relates to what the Commissioner says is the unlawful benefit obtained by the respondents from their involvement in significant criminal activity. More particularly, the application asserts:
On the balance of probabilities the respondents have in the relevant period of criminal activity (as defined in section 5(1) of the Act, namely seven years before the date of this application), unlawfully benefited to the value of at least $1,157,224.21 from significant criminal activity, namely, the supply of pseudoephedrine.
[9] The Commissioner seeks to realise any profit forfeiture order that is made through the sale of the respondents’ family home, at Unit 2, 19 Murvale Drive.
[10] On 4 July 2013, Asher J granted effective control orders and restraining orders over the Murvale Drive property.
4 Strictly speaking, the relevant period would span from June 2006 to June 2013, although no
doubt any criminal activity could be expected to have ceased upon Mr He’s arrest in April 2011.
[11] Before turning to identify and consider the issues that need to be determined, it is useful to set out the relevant parts of the statutory forfeiture regime.
The Criminal Proceeds (Recovery) Act 2009
[12] The purpose of the criminal proceeds regime established under the Act is described in s 3(2)(a). It is to “eliminate the chance” for persons to profit from undertaking, or being associated with, “significant criminal activity”. The regime is also intended to deter significant criminal activity: s 3(2)(b). The Act permits the Court to make a number of different kinds of forfeiture orders, including orders of the kind sought here by the Commissioner.
Asset forfeiture orders
[13] Section 50(1) of the Act provides:
If, on an application for an assets forfeiture order, the High Court is satisfied on the balance of probabilities that specific property is tainted property, the Court must make an assets forfeiture order in respect of that specific property.
[14] The phrase “tainted property” is defined in s 5(1) of the Act as meaning any property that has, wholly or in part, been either:
(a) acquired as a result of significant criminal activity; or
(b)directly or indirectly derived from, more than one activity if at least one of those activities is a significant criminal activity.5
Profit forfeiture orders
[15] Section 55(1) requires the High Court to make a profit forfeiture order:
… if it is satisfied on the balance of probabilities that—
5 Section 50(1) is subject to s 51, which provides the Court with the discretion to exclude certain property from an assets forfeiture order if the Court considers that “having regard to all of the circumstances, undue hardship is reasonably likely to be caused to the respondent if the property is included in the assets forfeiture order.”
(a) the respondent has unlawfully benefited from significant criminal activity within the relevant period of criminal activity; and
(b) the respondent has interests in property.
[16] Section 55(1) needs to be read in conjunction with the statutory definitions of “significant criminal activity”, “relevant period of criminal activity”. The former term is defined in s 6 of the Act as activity engaged in by a person which, if charges were laid, would amount to offending:
(a) that consists of, or includes, one or more offences punishable by a maximum term of imprisonment of 5 years or more; or
(b)from which property, proceeds or benefits of a value of $30,000 or more have directly or indirectly, been acquired or derived.
[17] Subsection (2) of the definition provides that:6
(2) A person is undertaking an activity of the kind described in subsection (1) whether or not -
(a) the person has been charged with or convicted of an offence in connection with the activity; …
[16] And the latter term (“relevant period of criminal activity”) is relevantly
defined in s (1) to mean:
… the period that ends on the date the application is made and starts 7 years before …
(a) the date of the application for the relevant restraining order, if the application for the profit forfeiture order relates, wholly or in part, to restrained property;7
[17] As well, s 7 provides that, in terms of the Act, a person has “unlawfully benefited from significant criminal activity”:
6 The fact that it is not a prerequisite to the making of an order that the criminal activity concerned has resulted in criminal proceedings is confirmed by ss 15 and 16.
7 The application for restraining orders in the present case was made on 14 June 2013.
… if the person has knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).
[18] Section 52 requires that an application for a profit forfeiture order must:
(a) name the respondent; and
(b) describe the significant criminal activity within the relevant period of criminal activity from which the respondent is alleged to have unlawfully benefited; and
(c) state the value of that benefit; and
(d) identify the property in which the respondent holds interests and the nature of those interests.
[19] Once the Commissioner proves on the balance of probabilities that a respondent has unlawfully benefitted from significant criminal activity, s 53 places the onus on the respondent to disprove the level of that benefit. This reverse onus is said to be consistent with the Act’s focus on unexplained wealth, rather than on the underlying criminal acts (from which the offender may have been able to distance himself where the criminal standard of proof applies).
[20] Section 54 requires that, before making a profit forfeiture order, the Court must determine the maximum recoverable amount by -
(a) taking the value of the benefit determined in accordance with section
53; and
(b) deducting from that the value of any property forfeited to the Crown as a result of an assets forfeiture order made in relation to the same significant criminal activity to which the profit forfeiture order relates.
[21] And s 55(2) provides that:
(2) The order must specify -
(a) the value of the benefit determined in accordance with section 53; and
(b) the maximum recoverable amount determined in accordance with section 54; and
(c) the property that is to be disposed of in accordance with section 83(1), being property in which the respondent has, or is treated as having, interests.
(3) Subsections (1) and (2) are subject to section 56.
…
[22] Persons other than a respondent who are adversely affected by a civil forfeiture order may apply for relief under ss 62 and 66 of the Act. Relief must be granted if the applicant proves on the balance of probabilities that he or she:
(a) has an interest, or would but for any civil forfeiture order have an interest, in the property to which the application relates; and
(b) has not unlawfully benefited from the significant criminal activity to which the application relates.
Issues to be determined in the present case
[23] As I have noted earlier, the Commissioner seeks both asset forfeiture orders (in relation to the $61,000 cash seized from the storage unit and the $4,430 seized from the respondents’ home) and profit forfeiture orders in relation to the respondents’ alleged unexplained income over the five year period from 2006 to
2011.
[24] As far as the asset forfeiture application is concerned, Mr He’s position is that
he:
(a) accepts that the $61,000 found in the lock up should be forfeit. That stance is, of course, consistent with the position taken by him at sentencing, namely that neither the money nor the pseudoephedrine was his. This issue does not need to be considered further.
(b)disputes that the $4,300 found at Murvale Rd is tainted. He says that it comprises accumulated rent received from tenants and cash savings.
[25] In terms of the profit forfeiture orders sought, the $1,157,224.21 “unlawful benefit” figure contained in the Commissioner’s original application can be broken down as follows:
2011;
(b) an unverified deposit of $17,751.50 made into the respondents’ bank
accounts on 2 December 2010;
(c) $155,876.41 “unidentified” deposits into various accounts over the
2006 – 2011 period;
(d) $61,000 being the cash seized from the storage unit;
(e) $4,430 being the cash seized from the respondents’ home;
(f) $468,176.20 being the value of the ContacNT seized from the storage unit.
[26] Because Mr He did not dispute that the $61,000 cash found in the lock-up should be forfeit to the Crown as tainted property, it can immediately be removed from the above equation.8 And during the hearing it was accepted (I think) by Ms Thomson that the value of the pseudoephedrine should not be included in the calculation because it could not properly be said to form part of the “benefit” that the respondents derived from Mr He’s criminal activity. More particularly, the Crown
did not seek to contend that Mr He was in possession of the ContacNT other than on the basis outlined by Judge Crosbie; therefore it cannot be said that holding it in that way was of any relevant benefit to him. Moreover the pseudoephedrine has been seized and (presumably) destroyed by the Police. In those circumstances, it cannot be said that it was part of an unlawful benefit derived from the possession offence.
[27] As far as the basis for the remainder of the profit forfeiture order is concerned, the Crown relies on two things:
8 Double counting is not permitted, see s 54(1)(b).
2011; and
(b) the fact of Mr He’s conviction for his April 2011 possession of a
considerable quantity of pseudoephedrine.9
[28] Ms Thomson submitted that the combination of these two factors invites an inference that the deposits constituted the proceeds of significant criminal activity in which Mr He had been engaged during that time, namely the supply of pseudoephedrine.10 The measure of the unlawful benefit enjoyed by Mr He (and potentially forfeit to the Crown) was said to be at least equal to the quantum of the unverified deposits.
[29] Mr He’s position is that:
(a) he was not directly or indirectly engaged in significant criminal
activity during the “analysis” period;11 and
(b)the “unverified” deposits relied on by the Commissioner as establishing the amount of the unlawful benefit arising from his alleged supply of pseudoephedrine are otherwise explicable.
[30] The difficulty with the first contention is that the definition of “relevant period of criminal activity” is not confined to any “analysis” period but (in Mr He’s case) runs backwards for seven years from the date of the application for the restraining orders, namely 13 June 2013. The relevant period therefore plainly includes the time when he committed the (deemed) possession for supply offence to
which he pleaded guilty and for which he has been sentenced. Mr He’s case appears
9 As Judge Crosbie noted, the quantity of pseudoephedrine involved gave rise to a presumption of possession for supply.
10 Ms Thomson did not seek to argue that the part played by Mr He in the alleged supply was any different from the role said by him to have been played in the April 2011 offending.
11 By which Mrs Cooper meant the period over which the Commissioner had analysed the respondents’ bank accounts.
to be one that falls squarely within the kind of case contemplated by Venning J in
Commissioner of Police v Hayward when he said (at [22]):12
… The Commissioner is not, however, restricted to relying on actual proceeds received by the respondent in relation to the particular offending that he was convicted of. Such convictions provide proof the respondent has engaged in significant criminal offending, but the Commissioner can also seek to prove the benefit extended beyond the profits from the dealing supporting the convictions. The Commissioner can invite the Court to infer, on the balance of probabilities that the respondent was involved in other significant criminal activities that he was not charged with. The Commissioner can also, for instance, rely on the disparity between moneys passing through the respondent's bank account or finding its way into the purchase of assets as compared to his declared legitimate income to prove or establish the benefit the respondent received from his significant criminal activities.
[31] Accordingly it cannot be said that he has not been engaged in “serious criminal activity” during the relevant period.
[32] Accordingly, the only issue for determination relates to the quantum of the unlawful benefit enjoyed by Mr He during that period. In other words, the critical question is whether, and to what extent, Mr He can persuade the Court that some or all of the deposits said by the Commissioner to represent the unlawful benefit were, more likely than not, derived from legitimate sources.
[33] As far as Mrs Yu’s position is concerned the Commissioner does not contend that she was directly involved in Mr He’s alleged criminal activity. Rather, it is submitted that she indirectly enjoyed the benefit of that activity in circumstances where she must have known of the unlawful source of the funds deposited in the various bank accounts. If that is so, she would not be entitled to relief under s 66.
[34] For her part, Mrs Yu supports her husband’s position that there was no such
drug dealing. Alternatively she says that she had no knowledge of such activity and seeks relief under s 66 of the Act.13
12 Commissioner of Police v Hayward [2012] NZHC 1097 aff ’d [2014] NZCA 624 at [14] – [16].
13 No formal application for relief under s 66 was filed by Mrs Yu and, indeed, it could not be while she remained a “respondent”. Had it been necessary to do so, I would have permitted her to make such an application prior to the delivery of this judgment.
The evidence
Preliminary comment
[35] I record at the outset that I did not find the way in which the critical financial aspects of the Commissioner’s case was presented to be particularly helpful.14 Given the standard of proof and the statutory presumptions operating in his favour it is all too easy (but all too vexing for the Court) simply to go through a respondent’s bank accounts and list what appears to be almost every deposit made over a five year period and then simply assert that each is “unverified” or “unidentified”.15
[36] In saying that, I acknowledge that inquiries by the Police under the Act will often be an iterative process and that at the time an application for restraining orders is made (if any) the Commissioner may well be at a relatively early stage in his investigation. In Mr He’ case, however, some two years elapsed between his arrest and the initial application under the Act and there was a further year between the
granting of restraining orders the hearing of the forfeiture application.16 In those
circumstances I would have expected that some attempt would be made to ascertain whether there were obvious and plausible explanations for some, if not all, of the deposits said by the Commissioner to be unverified.
[37] It seems to me that the obvious and preferable course is for the Commissioner to use his considerable investigative powers under the Act and, in particular, to examine the respondents about their financial affairs, prior to presenting his case in Court. One might expect those examination powers to be routinely used, given that those who are the subject of them are not entitled to claim the privilege against self- incrimination. The need for some form of examination seems to me to be particularly important where it seems quite clear that, in common with many in the Chinese community in New Zealand, the great majority of the respondents’ day to
day financial dealings are undertaken in cash.
14 In her first (2013) affidavit, Ms Thompson specifically states that she does not give evidence as an independent expert. The need for the Commissioner to call such an expert in a case such as this appears to me to be worthy of further consideration.
15 As I understand it, the only deposits that were not included in the original analysis were those which were apparently matched by prior withdrawals from another of the respondents’ accounts.
16 In saying that, I appreciate that the Commissioner may potentially be constrained in the exercise of those powers where a criminal trial is pending: Commissioner of Police v Burgess [2012] NZCA 436.
[38] Because it appears these investigations did not take place, the Court was confronted by an oral application on behalf of the Commissioner to amend the amount of the “unlawful benefit” stipulated in the forfeiture application in light of certain information contained in Mr He’s affidavit, filed shortly before the hearing. And while the Commissioner’s forensic accounting expert, Ms Tanya Thompson, swore a new affidavit outlining the changes to her evidence (which had the effect of reducing the amount of unexplained deposits from $668,531.06 to $459,379.17), many of the changes were presented on a global basis and not linked to the specific deposits contained in the schedules that had been annexed to her earlier affidavit.
[39] By way of example only, in her 22 May 2014 affidavit Ms Thompson accepted that Mrs Yu had received wages over the period in question totalling
$108,311.74 and that the total amount of unexplained funds could be reduced accordingly by that amount. She made a similar (albeit qualified) concession in relation to director’s drawings taken by Mr He from his company on which he had accounted for income tax. But in neither case did she then attempt to identify which of the specific “unexplained deposits” were now regarded by the Commissioner as legitimate as a result.17 Neither the Court nor Mr He knew which of the deposits were still in issue. The Court was thus left with a confusing morass of financial minutiae through which it subsequently has had to wade.
[40] In an attempt to clarify matters while writing this judgment I issued a minute directing the Commissioner to prepare:
... a further affidavit which annexes or contains a table clearly setting out the deposits that are still said by her/the Commissioner to be unexplained. My strong preference is for a single, chronological, table incorporating all the relevant unexplained deposits into all accounts (there should be a column identifying which account). The table should also contain a column identifying those deposits for which the relevant bank account records contain a narrative explanation (eg "bags"), if that explanation has not been accepted by the Commissioner. I am hopeful that it will then be readily apparent which deposits are accepted by the respondents/Ms Chen as not now being specifically explicable.
17 Although such an attempt was subsequently made (before the resumed hearing) by the respondents’ accountant, Ms Chen, the schedules of deposits prepared by her were arranged in a quite different way from those which had been prepared by Ms Thompson.
[41] Another affidavit sworn by Ms Thompson was duly filed. It did contain a more helpful schedule which identified “those transactions that the Commissioner accepts are likely to be deposits from legitimate sources”. The transactions were grouped under five different headings that were colour-coded. The entries under each heading were not, however, separately totalled, which has required extensive resort to the judicial calculator. But of more concern was the fact that Ms Thompson’s previous acceptance (in her affidavit of 22 May 2014) that all of Mrs Yu’s wages and at least part of Mr He’s business income could be subtracted from
the quantum of the unverified deposits appeared to have been withdrawn.18 The net
effect of the change in position in the December affidavit was to increase the
(previously reduced) total of the alleged unverified deposits from $459,379.17 to
$494,113.49.
[42] A further concern about the way in which the Commissioner’s evidence was presented in this case is that, because of the focus on “unverified” deposits, there was little evidence about withdrawals or, indeed, about those deposits that the Commissioner regarded as “verified”.19 In the absence of a more complete picture of the respondents’ financial affairs it is very difficult to perceive patterns or logic in, and between, the accounts. In my view, however, such patterns and logic do exist.
[43] So, as I have said, I necessarily accept that the Commissioner is required to meet only the civil standard of proof and that statutory presumptions as to the quantum of any alleged unlawful benefit operate in his favour. But I consider that the Court is nonetheless entitled to expect clear and cogent evidence to be presented before it is asked to contemplate granting an application such as the present, which involves effective forfeiture of the respondents’ family home in the absence of a relevant conviction. As will be apparent from my foregoing comments I have found neither coherence nor cogency in the present case.
[44] If I am correct about the required cogency and clarity of the evidence in such matters, the forensic deficiencies I have noted above would, arguably, suffice to
18 Ms Thompson advised that the Commissioner now considered that only some of Mrs Yu’s wages, and none of Mr He’s business income could be deducted. I return to these two issues later in this judgment.
19 No original bank statements, let alone a full set, were put in evidence.
dispose of the matter in the respondents’ favour. In fairness to the Commissioner, however, I have attempted to analyse the relevant evidence as best I can. As it transpires, that analysis has led me to the same conclusion.
The facts
[45] Before turning to consider the minutiae of the financial evidence, it seems useful to record some “big picture” factual matters which will inform my later analysis.
[46] A number of these factual matters are undisputed. In relation to others I have indicated whether I accept as plausible the explanatory evidence of Mr He and Ms Yu. In either event I attempt to record them in broad chronological order.
[47] At the time of the hearing Mr He was 48 years old. Mrs Yu is a little younger. They moved to New Zealand from China in 2003, although Mr He had earlier studied English here, in 2001. They have a teenage son who came from China to live with them a little later on. Mr He and his family were granted permanent residency in 2008.
[48] Prior to their arrival in 2003 Mr He and Mrs Yu applied for, and were granted, a New Zealand Long Term Business Visa. For the purpose of their application, they were required to complete a “certificate of deposit” as proof that they had savings and funds available in China. The certificate they provided was to the effect that they had savings of 1 million Renminbi (RMB), or approximately NZD 200,000. The evidence suggests that these savings principally have been Mrs Yu’s, or at least under her control.
[49] Mr He said, and I accept, that at a relatively early point (2004 or thereabouts) they remitted approximately one fifth of that amount (RMB 200,000 or NZD 40,000) to New Zealand. The rest was left in China. He said (and I accept) that some of what remained was transferred to New Zealand as it was needed during the period now at issue. I address the detail of those transfers as they arise throughout this judgment.
[50] In any event, in March 2004, shortly after his arrival to New Zealand, Mr He set up a business which operated under the name Diafloor Ltd (Diafloor). Mr He was Diafloor’s sole director and shareholder. The company specialises in concreted flooring services, including grinding, polishing, sealing, preparing and resurfacing concrete floors for residential and commercial clients.
[51] Orthodox annual accounts were prepared for the company by a chartered accountant. The accounts match the tax returns filed both by Mr He personally and by the company. The Commissioner’s forensic accounting witness, Tanya Thompson, accepted (in her affidavit dated 22 May 2014) that Mr He received the following payments by way of director’s drawings:
(a) For the FYE 31 March 2007, $55,144.00; (b) For the FYE 31 March 2008, $63,158.00; (c) For the FYE 31 March 2009, $46,502.00; (d) For the FYE 31 March 2010, $ 28,932.00; (e) For the FYE 31 March 2011, $21,610.00.20
[52] I am satisfied that Mr He took these drawings in cash. I will return to their
wider significance later in this judgment.
[53] Following Mrs Yu’s arrival in New Zealand in 2003, she initially worked several jobs on a casual basis. In 2005, she obtained permanent full-time employment as a machinist at Startex Apparel Ltd (Startex), earning $16 an hour as a machinist. It seems that, on average, she worked more than 50 hours per week. In Ms Thompson’s May 2014 affidavit she accepted that Mrs Yu received the following
(net) income from that job during the period in question:
20 It appears that the company’s profits dropped away after 2008, when Mr He suffered a heart
attack.
(a) For the FYE 31 March 2007, $31,023.78; (b) For the FYE 31 March 2008, $31,849.16; (c) For the FYE 31 March 2009, $27,582.91; (d) For the FYE 31 March 2010, $17,855.89.
[54] Although not the subject of any express concession by the Commissioner, I note that Startex was a Chinese-run business and I accept that Mrs Yu was generally paid in cash which she then deposited in one or other of her personal bank accounts.21 In theory, therefore, up to $108,311.74 of the “unverified” deposits can therefore be explained in this way.22
[55] At this point, I interrupt the chronological narrative to record that the
evidence before me related to eleven bank accounts operated by the respondents over the analysis period.23 These accounts were as follows:
Account holder
Account number
Period of operation24
Alleged unverified deposits25
Fang Yu
12-3056-0849568-00
14 April 2007 – 8 January
2011$322,310.90
Fang Yu
12-3056-0849568-50
12 April 2006 – 19 July 2006;
18 & 19 July 2007
$18,461.19
$48,700.00
Fang Yu
12-3056-0849568-51
16 August 2006 – 4 April 2011
$71,705.20
Fang Yu
03-0166-0455304-00
5 – 14 January 201126
$29,000.00
21 Startex accounted to the Commissioner of Inland Revenue for PAYE. Mrs Yu’s tax returns were
in evidence before me.
22 In fact I have been able to identify only $103,204.81 of the deposits actually made that can specifically be attributed to Startex wages. The closeness of this total amount to the total IRD amount, however, in my view speaks for itself.
23 The respondents’ mortgage accounts, for example, did not form part of the evidence.
24 These dates are not necessarily the opening and closing dates of the accounts but the dates between which the Commissioner alleges unverified deposits were made into them.
25 The figures are taken from Ms Thompson’s first affidavit dated 14 June 2013. Some of the
unverified deposits have since been accepted by the Commissioner as being adequately verified.
26 This account contains three alleged unverified deposits over a nine day period)
Le He & Fang Yu 03-0104-0578982-00
28 July 2006 – 28 February
2011$79,210.00
Zhen Ting Trading
Ltd12-3233-056467-00
8 November 2009 – 4 April
2011$42,125.50
Fang Yu
12-3056-0849568-00
2 December 201227
$17,751.50
Fang Yu
12-3056-0849568-74
1 February 200928
$5000.00
Fang Yu
12-3056-0849568-51
24 May 2008 – 21 December
200829
$560.00
Le He & Fang Yu
03-0104-0578982-00
31 March 2008 - 5 April 2011
$21,113.94
Diafloor Ltd
4715-4030-0000-8643
23 December 2008; 4 May
2010; 22 February 2011
$11,592.83
[56] At first glance the proliferation of accounts might appear suspect. But when they are considered globally they appear to me to be unremarkable. In general, it appears that certain accounts were used for certain specific purposes, although on my analysis (for example) Mrs Yu’s wages were paid by her into three different accounts during three different periods of time.
[57] It will also be observed that none of the accounts is solely in Mr He’s name. He had control over the Diafloor account and shared one other with his wife. The respondents’ explanation for this was that Mrs Yu controlled the couple’s finances, principally because Mr He has, since his arrival in New Zealand, developed a serious gambling problem.30 The evidence was that, in an attempt to control his gambling, Mr He would regularly give part of his director’s drawings from Diafloor to his wife for safe-keeping and that she would then deposit those funds into their joint bank
account (03-0104-0578982-00).
27 This account contains only one alleged unverified deposit.
28 One alleged unverified deposit only.
29 Two alleged unverified deposits only.
30 As I have said, it also appears that the funds left in China may also have been under her control.
[58] Importantly, the fact of Mr He’s addiction to gambling was accepted by the Commissioner.31 Indeed, the Commissioner’s financial evidence shows that over the period in question, Mr He withdrew cash from the Diafloor account totalling
$140,220.40 at Casino Bars and Lotto shops. Ms Thomson submitted, and I accept, that this sum must logically form part of (and be deducted from) his director’s drawings.
[59] As it happens, when that $140,220.40 sum is combined with the contents of the joint account (03-0104-0578982-00), the total matches very closely to the total amount of director’s drawings noted at [51] above. The nature and quantum of the individual deposits made into that joint account (small rounded amounts varying between $200 and $2,000, paid in on a reasonably regular basis) is also consistent with the evidence of Mr He recorded at [57] above. I therefore accept that the
$79,210.00 contained in 03-0104-0578982-00 represents the remainder of Mr He’s
Director’s drawings and was legitimately obtained.
[60] I specifically reject what appears to be Ms Thompson’s about face on this issue in her final affidavit (the logic of which I find difficult to understand). I reject it not only because Mr He has had no opportunity to respond to the Commissioner’s revised position but also because I consider the evidence that I have just described strongly suggests that the position is otherwise.
[61] But I return again to the chronology. In mid-July 2006 Mr He and Ms Yu purchased their first New Zealand property (107 Ennis Avenue) for NZD$345,000. They say they paid a 20% deposit which consisted of cash savings and money remitted from China. I accept that it is more probable than not that the two cash deposits of $20,000 and $28,700 made into one of Mrs Yu’s ASB accounts on 18 and
19 July 2006 were made for the purpose of funding that, although where that money came from is less obvious on the face of the material before the Court.32 The bank records show that a further $8,873.86 was also transferred from China on 19 July
2006 and that was confirmed by Mr He. Given my acceptance that the respondents
31 It was no part of the Commissioner’s case that Mr He was using casinos to launder money
obtained from drug dealing.
32 I address the probable source of these funds again at [95] and following below.
did have funds remaining in China and that they transferred those funds to New
Zealand from time to time when required, I accept that that deposit is “verified”.
[62] I also accept Mr He’s evidence that the respondents rented out two of the rooms in the Ennis Avenue property for $280 per week and that this rent was paid to them in cash. The Commissioner did not demur on that issue. And by the Commissioner’s calculation these rental amounts (from the date of purchase until the property was sold) could account for up to $24,080 of the cash deposits over time.33
[63] In April 2008 the respondents sold 107 Ennis Ave for NZD 399,000. It may reasonably be assumed that their equity (the increase in value together with their initial deposit) was at least $123,000. No evidence was put before the Court about that but presumably the respondents either kept some of this money in cash, put it on term deposit or banked it in one or other of the respondents’ accounts in a way that the Commissioner regarded as “verified”.34
[64] Following the sale, the respondents moved into a rental property at 145
Pigeon Mountain Road and sublet two bedrooms for $300 per week.35 I accept that they did so and that the sublet rent was paid in cash. The accumulated rent received while living at this address would be approximately $24,000.
[65] On 28 September 2009 Mrs Yu incorporated her own company Zhen Ting Trading Ltd (ZTT) which subsequently operated as a “Two Dollar Shop” in Auckland, trading as “Coin Save”. Mrs Yu was and is the sole director and shareholder of that company.
[66] The (incomplete) summaries of the respondents’ various accounts show that a total of $48,000 was transferred from Mrs Yu’s principal ASB account to ZTT’s account in October and November 2009. The respondents’ evidence was, and I accept, that this constituted seed capital for the new business. The account
summaries also show that a total of $45,000 in cash (in increments of $5000 (x 2),
33 As to which see also [95] and following below.
34 For example one of the appendices to one of Ms Thompson’s affidavits shows a term deposit of
$40,000 being made at around this time.
35 Their own rent was $390 per week.
$7000, $8000 and $10000 (x 2)) was paid into Mrs Yu’s ASB account just prior to these transfers taking place. The Commissioner maintained his position that these deposits (or rather, their source) are unverified.
[67] The bank account narrations show, however, that of these “unverified” deposits, $10,000 was transferred from a bank account belonging to Cuiling (Helen) Zhao. Mr He’s evidence was that Helen Zhao was a friend who loaned them money. On 31 December 2009 there is another similar $10,000 deposit with a narration that suggests it was also a loan from Ms Zhao.
[68] Although counsel for the Commissioner, Ms Thomson36, submitted that the respondents could and should have called Ms Zhao to give evidence to the effect that she did indeed loan them these sums I do not accept that not doing so is fatal to their position. There is no evidence whatsoever to suggest either that Ms Zhao was engaged in Mr He’s alleged criminal activity or that she does not exist at all, and the bank account narrations were therefore somehow fictitious. If that were the case then one would expect that other “unverified” cash deposits would have similar narrations. I simply do not believe that Mr He or Mrs Yu had either the foresight or the level of criminal sophistication required to make up these entries.
[69] I return to the issue of the remaining $45,000 deposited at around the time of the establishment of ZTT later in this judgment.
[70] Mr He also produced a summary of Mrs Yu’s income from ZTT as returned to Inland Revenue between September 2010 and March 2011. After the deduction of PAYE she received a net amount of $17,880.38 over this period. There are, however, no payments into the respondents’ accounts which appear obviously to reflect these wages.
[71] During the initial period of ZTT’s operation (between October 2009 and 12
September 2010) Mr He said that Mrs Yu may have paid her own wages (or taken as
director’s drawings) out of ZTT’s takings. There are reasonably regular deposits of
small rounded amounts (ranging from $700 to $1000 and totalling approximately
36 As opposed to Ms Thompson, the Commissioner’s forensic accounting witness.
$10,680) paid into Mrs Yu’s principal (12-3056-0849568-00) account during this period, which are consistent with that. I do not consider that any failure to account to Inland Revenue for these payments (and the evidence is unclear on that issue) means that the Court is not entitled to accept otherwise plausible and consistent evidence about their source.
[72] Similarly, it seems tolerably clear that between 31 March 2008 and 5 April
2011 Diafloor, on occasion, undertook completed cash jobs for which it may not have returned for tax purposes. These appear to have been deposited almost entirely into the respondents’ joint account 03-0104-0578982-00.37 They total $21,113.94. Other than a single payment of $7.54 the names of the customers are recorded alongside the deposits in the bank account narration. I consider that these payments are clearly legitimate in the relevant sense. Any failure to pay income tax on these receipts is not of present concern.38
[73] ZTT’s own accounts (which were included in Ms Thompson’s schedule of unverified deposits) also show small regular cash deposits from 8 November 2009 onwards totalling $43,125.50. I accept (as, ultimately, did the Commissioner) the respondents’ evidence that these sums constituted the cash sales made by the business (which was, after all, a $2 dollar store).
[74] In January 2011, the couple purchased Unit 2, 19 Murvale Drive for NZD$512,500. Mr He said that they took out a mortgage of $330,000 and there is documentary support for that. I am satisfied that the remainder ($182,500) was funded largely as follows:
(a) the transfer of $17,751.50 from China through Modern Finance Ltd (into 12-3056-0849568-00) on 2 December 2010 (accepted by the Commissioner);
(b) $50,000 paid into 12-3056-0849458-00 on 30 December 2010;
37 There is a single further instance of a similar $800 payment that was made into Mrs Yu’s 12-
3056-0849568-00 account, which I also accept as verified.
38 Tax evasion may well qualify as “significant criminal activity” but that was not the basis on which the Commissioner’s case was advanced. Moreover any amount of tax evaded in the respondents’ case appears to have been very small.
(c) $79,840 transferred from China on 8 January 2011 into 12-3056-
0849458-00. This sum was mirrored by a transfer out of RMB 400,000 recorded in Mrs Yu’s passbook for her Chinese account;
(d) $29,000 deposited in three tranches ($18,000, $10,000 and $1000)
over nine days in January 2010 into 03-0166-0455304-00.
[75] The source of the sums at (b) and (d) remain on their face “unverified” and I
shall return to them later.
[76] Again, Mr He said (and I accept) that they received $400 per week from the rooms that were tenanted. The house has six bedrooms and four were tenanted. Approximately $2000 would therefore have been received by the respondents as rental on Ennis Place immediately prior to Mr He’s arrest.
[77] As well as the loans that I have accepted were made to the respondents by Helen Zhao there were, throughout the period at issue, a number of other deposits (both cash and otherwise) where the depositor or source of funds is named in the bank account narration. Mr He’s evidence was that these amounts were variously loans from named acquaintances and friends or the proceeds from the sale of bags, as to which he had a business arrangement with a company called Bishing Steel Construction Ltd.
[78] The Commissioner was prepared to accept the respondents’ evidence in this respect, at least in part. As I said in relation to the loans from Ms Zhao, I do not consider that the onus placed on Mr He means that he was obliged to call the individuals in question or to provide additional corroborative evidence. Any suggestion that the circumstances were not as he said, or that the names or narrations are fictitious, is in my view improbable. If the respondents had had that degree of foresight or had been of such deceptive inclination then one would expect their practice to be uniform, complete and more detailed. It was none of those things.
[79] Accordingly I also accept that the deposits with the narrations “bags”, “Jeff” or “Wei” are sourced from the repayment of small loans or the sale of bags by Mr He. And I consider that the larger deposits attributable to other named individuals more probably than not are derived from legitimate sources. These are:
(a) A transfer of $413 on 29 December 2008 from “Mr J Liu Liu Zaho
Dan”;
(b) A payment of $5000.00 received on 1 March 2009 from “J Liu Liu
Jafeng”;
(c) A transfer from China made through a company called Dong Ping on
20 May 2009.
Summary: financial analysis
[80] It is now necessary to set out the conclusions I have reached on the basis of the more general evidence outlined above on an account by account basis. That is not an exercise that has ever properly been undertaken by the Commissioner but it is, in my view, essential in order fairly to dispose of the matter. At the risk of repeating myself, such a detailed and time-consuming exercise is not something in which this Court should have been required to engage.
[81] The analysis that follows deals first with those deposits into each account about which there was specific evidence or as to which I consider there are specific explanations. I identify those deposits that are not immediately explicable on that basis (are “prima facie unverifiable”) and return to deal with them later, at [94] and following below.
[82] For ease of reference I attach to this judgment Ms Thompson’s specific, account by account, schedules of “unverified” deposits on which the Commissioner originally relied.
Mrs Yu’s account 12-3056-0849568-00 ($322,310.90 alleged unverified deposits)
[83] For the reasons given variously above I accept as “verified”:39
(a) Mrs Yu’s wages from Startex totalling $34,202.45 (cash) plus
$25,382.81 (other)
(b) $12.94 received from Amway;
(c) Mrs Yu’s drawings from ZTT between 2 March 2010 and 12
September 2010 totalling $10,680 (d) Sale of Bags, Jeff/Wei: $4,240
(e) $413 from J Liu on 29 December 2008
(f) $5,000 transfer from Liu Jiafeng on 1 March 2009
(g) International transfer from China of $43,269.70 on 20 May 2009 (h) $79,840 transferred from China on 8 January 2011;
(i) 2 x $10,000 plus $300 borrowed from Helen Zhao;
(j) $800 cash sale to identified person on 23 August 2010 (k) De minimis (less than $500) deposits totalling $3,170
[84] Accordingly, what prima facie remain as “unverified” deposits into this
account are:
(a) six deposits totalling $45,000 made between 4 October 2009 and 15
November 2009 which were applied as start up costs for ZTT; and
39 By which I mean it has been established that they are more likely than not to have legitimate sources.
(b)a single deposit of $50,000 made on 30 December 2010 that was put towards the purchase of Murvale Drive.
Mrs Yu’s account 12-3056-0849568-50 ($18,461.19 (cash) and $48,700.00 (other))
[85] I consider that the respondents have verified all of the cash deposits into this account (totalling $18,461.86) as follows:
(a) Payment from Amway of $72.98;
(b)Mrs Yu’s Startex wages (deposited between in April to July 2006, during which period her wages were not deposited into her 12-3056-
0849458-00 account) totalling $9,514.35; (c) $8,873.86 transferred from China.
[86] Prima facie unverified are the two “other” deposits (comprising two payments of $20,000 and $28,700) made on 18 and 19 July 2006 which I consider were used to settle the purchase of the Ennis Road house.
Mrs Yu’s account 12-3056-0849568-51 ($71,705.20)
[87] On the basis of the evidence traversed above I consider that the following deposits are more likely than not to have been from legitimate sources:
(a) Startex wages deposited between 16 August 2006 and 29 August 2007 and (it appears) on 21 February 2011 and 4 April 2011 totalling
$34,105.20;
(b) $500 paid from Bishing Steel Construction Ltd; (c) A de minimis deposit of $60.
[88] There were a further nine cash deposits in rounded amounts made between 30
March 2008 and 13 June 2010 which total $37,600 which are prima facie unverified.
Le He & Fang Yu joint account 03-0166-0455304-00 ($79,210.00)
[89] I consider that the total amount deposited in this account has been verified as
a portion of Mr He’s drawings from Diafloor that he paid to Mrs Yu for safe-keeping.
Zhen Ting Trading Ltd’s account 12-3233-056467-00 ($42,125.50)
[90] I consider that the total amount deposited in this account is verified as cash
proceeds from ZTT’s $2 store business.
Mrs Yu’s account 12-3056-0849568-00 ($17,751.50)
[91] I consider that this single deposit is verified as a transfer of funds from China through Modern Finance Ltd.
Mrs Yu’s account 12-3056-0849568-74 ($5000.00)
[92] This single deposit made on 1 February 2009 has not been specifically explained.
Le He & Fang Yu joint account 03-0104-0578982-00 ($21,113.94)
[93] I regard this amount is verified as comprising payments from identified sources for cash jobs completed by Diafloor between 31 March 2008 and 5 April
2011.
Diafloor Ltd credit card account 4715-4030-0000-8643 ($11,592.83)
[94] There are three “unverified” payments totalling $11,592.83 said to have been made to Diafloor’s credit card on 23 December 2008, 3 May 2010 and 22 February
2011.
Amounts remaining prima facie unverified
[95] Based on the above account by account (and payment by payment) analysis the Court is left with the following deposits that the respondents have been unable specifically to verify:
(a) Two deposits in July 2006 totalling $48,700; (b) One deposit in February 2009 of $5,000;
(c) Deposits during October and November 2009 totalling $45,000 (d) A deposit in December 2010 of $50,000;
(e) Nine deposits made between 30 March 2008 and 13 June 2010 totalling $37,600;
(f) Three credit card payments totalling $11,500.
[96] As well, there is the $4,430 that the respondents were found to have in their house in cash in April 2011.
[97] All of these sums total slightly less than $200,000, which is only slightly higher than the result of the analysis done by the respondents’ accountant, Ms Chen.40 It is but 40 per cent of the amount still claimed by the Commissioner.
[98] The question that then arises is whether, notwithstanding the inability of the respondents precisely to account for these payments, the evidence nonetheless satisfies me that some or all of these funds are more likely than not to have been legitimately obtained. I consider that it does. More particularly I am of the view that:
(a) The $48,700 deposited in 2006 and put towards the respondents’ first house is more likely than not to comprise the funds originally transferred from China (which Mr He put at around $40,000), perhaps
combined with cash savings41;
40 On the basis of the specific explanations given by the respondents, Ms Chen put the “unverified”
sum at about $175,000.
41 If that is correct the total amount transferred from China over the relevant period would total almost exactly NZD 200,000 (RMB 1 million) which the respondents originally left there.
(b)The nine deposits totalling $37,600 made into 12-3056-0849568-51 from March 2008 to June 2010 can be accounted for by an accumulation of rent payments received by the respondents over the relevant period, which totals approximately $50,000;
(c) The net proceeds from the sale of the Ennis Avenue house in 2008 (which I have said is likely to have been at least $123,000) is more likely than not to account for the larger deposits that were made specifically at times when substantial funds were needed, namely
$45,000 in October 2009, when ZTT was established, and $50,000 in December 2010/January 2011, when the respondents purchased Murvale Drive;42
(d) The other remaining “unverified” amounts can more than adequately
be accounted for by:
(i) any remaining rental accumulations and
(ii) the remainder of the Ennis Avenue proceeds.
[99] As well, and as I have noted earlier, Ms Yu’s (declared) income from ZTT between September 2010 and March 2011 does not appear to have been accounted for. Portions of that might no doubt also have gone towards the purchase of Murvale Drive.
[100] The conclusions just recorded mean that I do not consider that the $4,430
found in the respondents’ possession in April 2011 constitutes an unlawful benefit. Nor, in the circumstances, can it be regarded as “tainted”.
42 In my view, the coincidence in terms of timing between the more significant “unexplained” cash deposits and important events in the lives of the respondents (the purchase of properties and the establishing of a business) also cuts across the Commissioner’s case. While I suppose it is possible that Mr He was dealing in drugs throughout the relevant period but only asked his wife to deposit the proceeds in lump sums into her accounts when he wished to buy a house it does not strike me as probable.
Conclusion
[101] Given that the evidence satisfies me that the various deposits in the respondents’ bank accounts are more likely than not to have had legitimate sources, the fact of Mr He’s conviction for a one-off possession offence (as to which there is no evidence to suggest that he played a greater role than that recorded by Judge Crosbie) does not assist the Commissioner. Accordingly, the onus placed on the respondents by s 53 of the Act is rebutted; on the balance of probabilities I consider that they enjoyed no unlawful benefit from significant criminal activity (the possession of pseudoephedrine for supply) between 2006 and 2011.
[102] The only order I make as a result of this judgment is that the $61,000 found by Police in Mr He’s lock-up in April 2011 is tainted property that is forfeit to the Crown. All other applications are declined.
[103] It may be that Mr He and Mrs Yu should be entitled to costs in the usual way, which I would fix on a 2B basis. Memoranda may be filed if the assistance of the
Court is required in that respect.
Rebecca Ellis J
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