Commissioner of Police v McDonald
[2019] NZHC 1089
•17 May 2019
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2013-425-334
[2019] NZHC 1089
BETWEEN COMMISSIONER OF POLICE
Plaintiff
AND
KERRYN ROBERT MCDONALD
First Respondent
KERRI-ANNE REBECCA PIPSON
Second Respondent
Hearing: 9 May 2019 Appearances:
R Donnelly for Applicant
G Williamson for Respondent
Judgment:
17 May 2019
JUDGMENT OF MANDER J
[1] The Commissioner of Police (the Commissioner) has made two applications for profit forfeiture orders against the respondent, Kerryn McDonald, under s 55 of the Criminal Proceeds (Recovery) Act 2009 (the Act).
[2] On 9 December 2015, Mr McDonald was convicted on three counts of importing the Class C controlled drug pentedrone from China. He was sentenced to two years and four months’ imprisonment. On 23 August 2017, he entered a guilty plea to an unrelated charge of possession of methamphetamine for supply and was sentenced to four years’ imprisonment. The Commissioner contends that Mr McDonald should be required to pay an amount equivalent to the financial benefit that he derived from this criminal activity.
COMMISSIONER OF POLICE v MCDONALD [2019] NZHC 1089 [17 May 2019]
The offending
The importation of pentedrone
[3] On 29 July 2013, a package was intercepted by New Zealand Customs that contained 256 g of pentedrone. The package originated from a pharmaceutical company in China which specialises in the development and sale of various chemicals and pharmaceutical products, including pentedrone. The package was addressed to a Michael Flannery of 284 Tramway Road, Invercargill. The following day, 30 July, two further packages from the same pharmaceutical company were intercepted by Customs entering New Zealand. The first contained 264 g of pentedrone and was addressed to a Jay Rothera, 23 Murphy Street, Invercargill. The second package contained 206 g of pentedrone and was addressed to an Eve Flannery, 45 Regent Street, Invercargill.
[4] The police conducted an electronic surveillance operation which established that Mr McDonald and two other men were involved in the importation of pentedrone. Some of the intercepted conversations referred to the purchase of cheap disposable cell phones. Enquiries by police of a local supermarket established that Mr McDonald had purchased a cell phone in addition to a prepaid top up voucher on the night of 1 August. The following day, the police intercepted a phone conversation which captured one of Mr McDonald’s co-offenders asking him whether he had checked on the status of the inbound package that they were waiting on. Mr McDonald replied that he had not.
[5] Later that evening, police intercepted another conversation between the two men. They both discussed the parcel they were waiting to arrive by international mail and to clear Customs. Mr McDonald informed his associate that he had made an inquiry of the Chinese pharmaceutical company and that the woman he spoke to must have understood him because she emailed him advising she was going to make further enquiries with her “boss” and told him it was a matter of luck getting the package through New Zealand Customs. Mr McDonald was asked by his associate whether he had asked the Chinese woman if they could change the address they were sending it to. She was going to make an enquiry about that as well. Mr McDonald also informed
his associate that he had asked her if they could change it, so they would not have to pay for it using Western Union.
[6] As a result of this information, the police executed a search warrant where the associate worked. The police located a piece of paper with the names and addresses and tracking numbers of two of the three importations of pentedrone. They also located in the associate’s car the mobile top up voucher receipt that related to Mr McDonald’s purchase from the local supermarket on the evening of 1 August. The receipt also had details of the cell phone that Mr McDonald had purchased at the same time. This allowed the police to make enquiries of Telecom about phone calls and text messages made from the cell phone purchased by Mr McDonald.
[7] It was established that seven minutes after Mr McDonald purchased the phone from the supermarket a six minute call was made from the phone to the Chinese pharmaceutical company. It is a reasonable inference that this is the call, the content of which was relayed by Mr McDonald to his associate the following day. The information obtained from Telecom also revealed that the same phone was used to make calls to New Zealand Post. Information obtained from New Zealand Post confirmed the use of Mr McDonald’s phone. Recordings of those calls were obtained.
[8] The calls to New Zealand Post were for the purpose of enquiring about the whereabouts and status of the three packages. The tracking numbers of the intercepted packages was provided to New Zealand Post by the caller. One of the calls was made by Mr McDonald. On 16 July, he enquired as to the whereabouts of the intercepted package destined for 45 Regent Street. He quoted the tracking number for the package and told the call taker that the package contained a new hard drive valued at $40. When the police terminated their operation and spoke with Mr McDonald, he declined to comment or answer any questions.
Possession of methamphetamine for supply
[9] On 25 May 2017, the police executed a search warrant at Mr McDonald’s address in relation to unrelated matters. While the police were seeking to gain entry to the property, they observed Mr McDonald at the rear of the property throwing a bag over the fence into a neighbouring yard. The bag was subsequently recovered and
found to contain 112 g of methamphetamine with an estimated street value of
$100,700.
[10] Mr McDonald pleaded guilty to possessing the methamphetamine for supply, but his sentencing was the subject of a disputed facts hearing. During the search, surveillance cameras (in the form of old smart phones) and a number of plastic containers were seized. A set of scales were found in the pantry. Judge Callaghan was not satisfied that the cameras were used for the purpose of alerting Mr McDonald to the presence of people coming to the house to buy drugs. He noted there were other means of accessing the house which were not the subject of this type of surveillance.
[11] Nor was the Judge satisfied that the scales found in the pantry were used for dealing in methamphetamine. In relation to some plastic containers found in a toolbox, the Judge remarked that he was also not satisfied they were used for the breaking down of methamphetamine. Judge Callaghan proceeded to sentence Mr McDonald on the basis that while the quantum of the drug was for a commercial purpose, the Crown could not refute the submission made on behalf of Mr McDonald that he was only a “caretaker” for those drugs. It was on that basis that he was sentenced.
Criminal Proceeds (Recovery) Act 2009
[12]Section 7 Criminal Proceeds (Recovery) Act 2009 (the Act) provides:
In this Act, unless the context otherwise requires, a person has unlawfully benefitted from significant criminal activity 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).
[13] The Court’s jurisdiction to make profit forfeiture orders is provided by ss 53, 54, 55 and 56 of the Act. Section 53 provides as follows:
53 Value of benefit presumed to be value in application
(1)If the Commissioner proves, on the balance of probabilities, that the respondent has, in the relevant period of criminal activity, unlawfully benefitted from significant criminal activity, the value of that benefit is presumed to be the value stated in—
(a)the application under section 52(c); or
(b)if the case requires, the amended application.
(2)The presumption stated in subsection (1) may be rebutted by the respondent on the balance of probabilities.
[14]Section 55 states:
55 Making profit forfeiture order
(1)The High Court must make a profit forfeiture order if it is satisfied on the balance of probabilities that—
(a)the respondent has unlawfully benefitted from significant criminal activity within the relevant period of criminal activity; and
(b)the respondent has interests in property.
(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.
(4)A profit forfeiture order is enforceable as an order made as a result of civil proceedings instituted by the Crown against the person to recover a debt due to it, and the maximum recoverable amount is recoverable from the respondent by the Official Assignee on behalf of the Crown as a debt due to the Crown.
[15]The term “benefit” is defined in the Act as including proceeds and property.1
[16] In Pulman v Commissioner of Police, Lang J identified four steps required to be taken by a Court in determining whether to make a profit forfeiture order under s
55.2 It must determine the following:
(a)Whether the Commissioner has proved, on the balance of probabilities, that the respondent has unlawfully benefitted from significant criminal
1 Section 5.
2 Pulman v Commissioner of Police HC Auckland CIV-2010-404-5666, 27 May 2011, at [10]-[13].
activity during the relevant period.3 If the Court is so satisfied, the value of that benefit is presumed to be that stated in the Commissioner’s application. That presumption can be rebutted by the respondent on the balance of probabilities.4
(b)The Court must determine the maximum recoverable amount. That is done by taking the value of the benefit, as already determined in accordance with s 53, and deducting from that figure the value of any property already forfeited to the Crown by virtue of any assets forfeiture order made in relation to the same criminal activity as that to which the profit forfeiture application relates.5
(c)Whether any property should be excluded from the operation of the property forfeiture order because undue hardship is likely to be caused to the respondent if such property were realised.
(d)Once the steps at (a)-(c) have been undertaken, the Court must make a profit forfeiture order if satisfied, on the balance of probabilities, that the respondent has interests in the property.
[17] The profit forfeiture order under s 55(1) must specify the value of the benefit, the maximum recoverable amount (as determined under s 54), and the property that is to be disposed of, being that in which the respondent has, or is treated as having, an interest.6
[18] In the present case, the Court has not made any assets forfeiture orders, nor is it argued that there are any circumstances of undue hardship that are required to be considered. Accordingly, the maximum recoverable amount under s 54 will be the value of the benefit as determined in accordance with s 53.
3 Criminal Proceeds (Recovery) Act 2009, s 6, defines “significant criminal activity” as an activity that if proceeded against a person as a criminal offence would be punishable by a maximum term of five years’ imprisonment or more; or from which there is $30,000 or more of resulting profits, proceeds or benefits.
4 Section 53(1) and (2).
5 Section 54(1).
6 Section 55(2)(c).
The Commissioner’s applications
The pentedrone offending
[19] In relation to the first application, the Commissioner claims Mr McDonald unlawfully benefitted from significant criminal activity between 22 November 2006 to June 2014 to the value of $133,720, as a result of his involvement in the importation of pentedrone. That value was ascribed to the criminal activity from a calculation of the value of the imported pentedrone (726 g) which was intercepted by Customs and the results of a financial analysis of Mr McDonald’s bank accounts between 1 April 2010 and 30 November 2013, which identified $24,820 in cash derived from unknown sources.
[20] The Commissioner claims that Mr McDonald has an interest in or effective control over the following property which is sought to be realised:
(a)The proceeds from the sale of a property at 20 Dundee Street, Invercargill, currently held on restraint by the Official Assignee, being
$55,422.24.
(b)A property at 10 Largs Street, Wallacetown, of which he was the proprietor until 3 December 2013. On that date, and after his arrest, the property was transferred to Mr McDonald’s ex-partner. The value of the property as at 20 June 2014 was $45,000 but the property now has a current market valuation of $70,000.
(c)A 2010 Harley Davidson Dyna motorcycle, registration A8BJA, in respect of which Mr McDonald is the sole registered owner. The value of the motorcycle is estimated to be $18,700, according to a website that provides market values for motor vehicles.
[21] In summary, the Commissioner’s application is that between November 2006 and June 2014, Mr McDonald unlawfully benefitted from the importation of pentedrone to the value of $133,700. That offending represents significant criminal activity because it is punishable by a maximum term of imprisonment of eight years.
The Commissioner’s case is that Mr McDonald has an interest in the identified property.
Methamphetamine offending
[22] The second application is based on Mr McDonald’s possession of methamphetamine for supply, which carries a maximum penalty of life imprisonment. The Commissioner maintains that Mr McDonald has unlawfully benefitted to the value of $100,700 from that significant criminal activity, being the value of the methamphetamine seized from his address. The property to be realised is the same as that listed in respect of the first application.
Issues
Pentedrone importation
[23] In relation to the pentedrone offending, Mr McDonald accepts the Commissioner has proved, on the balance of probabilities, that he unlawfully benefitted from significant criminal activity during the relevant period. However, he disputes the Commissioner’s assessment of that benefit and seeks to rebut the presumed benefit put forward by the Commissioner in his application. Mr McDonald claims the total sum he received as a benefit was $6,000 being the total amount he was paid to contact the Chinese pharmaceutical company. It will be necessary for me to determine whether Mr McDonald has rebutted the presumed benefit and, if he has, the amount to which he has benefitted.
[24] However, a more fundamental question arises in relation to the Commissioner’s first application as to whether the sum of $108,900, calculated to be the value of the three packages of pentedrone intercepted by Customs, none of which were received by Mr McDonald or his co-offenders, is capable of constituting a benefit.
Methamphetamine offending
[25] In relation to the methamphetamine offending, Mr McDonald disputes that the Commissioner has proved that he has unlawfully benefitted from significant criminal
activity. He maintains he received no benefit, and that if he has benefitted, he obtained no profit, nor did he have a chance to profit from the activity. It will be necessary for the Court to determine if Mr McDonald has rebutted the presumed benefit derived from the calculated street value of the methamphetamine.
The property
[26] It is not disputed that Mr McDonald has an interest in the proceeds of the sale of 20 Dundee Street or the property at 10 Largs Street. The Harley Davidson motorcycle has never been seized nor located. Mr McDonald’s evidence was that he has stripped the motorcycle down and sold it as parts, and that it no longer exists as an item of property.
The value of the benefit from the importation of pentedrone
Mr McDonald’s evidence regarding his involvement
[27] Mr McDonald sought to rebut the presumed benefit he obtained from the importation of pentedrone by giving evidence that he played a limited role in the importation of the drug. He claimed he was only paid relatively small amounts of cash for his assistance. Mr McDonald said he was approached in early 2013 to see whether he wanted to earn some “easy money”. He claimed he was asked to send emails to order chemicals and was provided with the name and address of the person to whom the chemical was to be delivered. The order was paid by the person who engaged him, but who Mr McDonald refuses to identify.
[28] Mr McDonald said the first order was for $40 for one gram, and that he was paid $500. This was the same amount he was paid after placing further orders. He received the cash after the drugs arrived at the postal addresses. He maintains there were between 10-12 orders and that he received between $5,000-$6,000 in cash. Mr McDonald deposed that he spent the money almost immediately, and a lot of it was lost on gambling. He knew it would not be a good idea to put the money into his bank account, and so avoided doing that.
[29] I do not accept Mr McDonald’s evidence. I find it unconvincing and unbelievable. There is no rationale for why he would be recruited simply for the purpose of contacting the Chinese pharmaceutical company to place the orders, having been provided with the addresses to which the pentedrone was to be sent. Moreover, Mr McDonald’s evidence did not substantively meet or engage with the evidence against him, which is based on the interception of his communications.
[30] Mr McDonald did not explain, or at least satisfactorily explain, the extent of his involvement in the ongoing importation scheme as disclosed in the intercepted conversations. This included details of him purchasing a cell phone for the purpose of allowing the members of the joint enterprise, including himself, to make illicit communications, discussions Mr McDonald had with a co-offender about checking the status of the packages that had not arrived at the intended addresses, the follow-up that Mr McDonald undertook with the Chinese pharmaceutical company, and the discussions he had with the representative of that company about getting the packages past Customs. The evidence shows that Mr McDonald was aware of such details as how the drugs were to be paid, and the intercepted conversations captured Mr McDonald discussing with his co-offender methods of shipping and payment to ensure future packages could enter the country and arrive at their intended destinations.
[31] One conversation was particularly telling. Mr McDonald is recorded as saying to his co-offender:
One part we were getting 500s and then they kept getting stopped so we dropped back to (inaudible) and they were getting trimmed fucken.. like it started in like 50 I think for the first one. I think the first one was only 30 or 50 and then it progressively got up ‘til it was like half a kg at a time but then so (inaudible).
[32] Mr McDonald provided no satisfactory explanation for this statement which revealed his close involvement in the illegal importation scheme from its very beginning. That passage together with the other evidence set out in Detective Sergeant Andrew Beswick’s affidavit in support of the Commissioner’s application demonstrates Mr McDonald’s past and ongoing involvement as a co-conspirator in the joint importation enterprise. Insofar as Mr McDonald has sought to present himself
as a “bit player” in the offending as a means to rebut the value of the unlawful benefit he received from the criminal activity, he has failed to do so.
Did the importation of the three packages of pentedrone constitute an unlawful benefit of any value?
[33] The second issue that arises in relation to the alleged value of the significant criminal activity is more problematic for the Commissioner. That relies on the value of the pentedrone that was imported in the three packages but intercepted and seized by Customs. From information obtained by the police regarding the street price of pentedrone in the Southland region, it was calculated that the 726 g contained in the three intercepted packages was worth $108,900. However, the imported pentedrone never came into the possession of either Mr McDonald or his associates, and none of them were ever able to exercise any control over the drug despite its importation.
[34] To overcome the fact the drug never came into Mr McDonald’s or his co- offenders’ possession, the Commissioner sought to rely on an earlier decision of this Court, Commissioner of Police v Murray.7 The judgment considered whether an offender had unlawfully benefitted from being found in possession of a large amount of methamphetamine. He was the courier of the drugs and had been apprehended before he was able to complete his delivery. That case together with the earlier decision of Pulman v Commissioner of Police,8 to which I have earlier referred, are of relevance both to the Commissioner’s application as it relates to the issue of whether Mr McDonald benefitted from the importation of pentedrone and to the Commissioner’s second application based on Mr McDonald’s possession of methamphetamine for supply.
[35] In Pulman, the respondent was employed in a pharmacy. He pleaded guilty to a representative charge of manufacturing methamphetamine. His convictions stemmed from numerous sales of pseudoephedrine-based products that he sold from the pharmacy over a two year period. He sold approximately 1,290 packets of drugs containing pseudoephedrine to persons who called at the pharmacy outside usual trading hours, at a price routinely of $100 per packet, paid in cash. It was not disputed
7 Commissioner of Police v Murray [2016] NZHC 2699.
8 Pulman v Commissioner of Police, above n 2.
that the respondent received cash totalling approximately $129,000 for the drugs he sold in that way. He argued that he deposited the cash that he received from the sale of the drugs into a cashbox kept for that purpose, which his employers then used to pay staff wages and to meet other business outgoings. The respondent insisted he never received any personal benefit from the transactions that led to his conviction.
[36]In considering the Commissioner’s application, Lang J concluded:
[20] At first sight, the Commissioner’s approach appears to produce a harsh outcome. That is particularly the case if, as Mr Pulman maintains, he immediately handed all of the proceeds of sale of the drugs to his employer. If he did that, he did not ultimately derive any financial reward as a result of his criminal activity.
[21] If the definition in s 7 is applied literally, however, Mr Pulman undoubtedly received a benefit from his criminal offending. He did not gift the drugs to the persons who came to the pharmacy. Rather, he sold them to purchasers for $100 per packet. The receipt of cash in those circumstances must, in my view, amount to the derivation of a benefit from criminal activity.
...
[25] Relevantly, the forfeiture regime proposes to eliminate not only the ability of persons to actually profit from undertaking or being associated with significant criminal activity, but also the “chance” that they may be able to do so. In addition, the regime proposes to deter significant criminal activity. Finally, it proposes to reduce the ability of criminals and persons associated with crime or significant criminal activity to continue or expand criminal enterprise.
[26] When the purpose and objects of the Act are measured against the facts in the present case, a clear outcome emerges. First, the monies that Mr Pulman received were derived directly from significant criminal activity as the proceeds of drugs that he had sold for cash. Second, the proceeds of sale amounted to income in his hands even if he subsequently handed the cash over to his employer. Third, Mr Pulman always had the chance to profit from his criminal activity because he always had the ability to keep the sale proceeds for his own benefit.
[27] In addition, the criminal activity in which Mr Pulman engaged was obviously of a type that the forfeiture regime seeks to deter. Finally, the provision of precursor drugs to persons involved in the manufacture of methamphetamine meant that Mr Pulman’s criminal activity had the effect of continuing or expanding criminal enterprises by others.
[28] These factors suggest that the forfeiture regime was clearly designed to apply to criminal activity of the type that Mr Pulman engaged in. The regime provides a strong deterrent to those who are minded to engage in such activity, because it will apply even in circumstances where the offender ultimately derives no personal benefit from his or her criminal activity. The
Commissioner’s approach, therefore, accords with both the literal wording of s 7 and the purpose and objects of the Act.
(Footnotes omitted)
[37] Applying the reasoning of Lang J in Pulman to the circumstances in Murray, Gendall J concluded there was no salient difference between the two cases. The fact Mr Murray was simply a courier of drugs, transporting them from Auckland to Christchurch and nothing more, and that he ultimately received nothing for his efforts, did not remove the fact that he had charge of the drugs at the time he was stopped by police. He “always had the chance to profit from his criminal activity” because he always had the ability to keep or deal in those drugs for his own benefit.
[38] Because Mr Murray had control of the methamphetamine and clearly had the “chance” to profit from the criminal activity by selling or diverting the drugs onto the market himself, he was held to have obtained a personal benefit. Gendall J concluded that it did not matter in that case that ultimately Mr Murray may not have managed to keep the drugs or, indeed, any monies from their possible sale because he was apprehended by police. His Honour considered the unlawful benefit in that case emanated from Mr Murray being in possession of a large and valuable quantity of drugs and thereby being able to deal with or dispose of them as he thought fit. As a result, it was held that the Commissioner had proved that during the relevant period Mr Murray had unlawfully benefitted from significant criminal activity.
[39] The Commissioner, in this case, sought to argue that the unlawful benefit obtained by Mr McDonald and his associates from the importation of the three packages of pentedrone was “the ability to control the drug and to direct where it was to be sent”. While it was accepted by Mr Donnelly, who appeared on behalf of the Commissioner, that the circumstances of this case represented a step further on from the situation in Murray, he argued the same reasoning applied.
[40] The difficulty with the Commissioner’s submission is that neither Mr McDonald nor his associates ever obtained possession of the three packages of pentedrone, nor were they ever in a position to exert control over the drug for the purpose of obtaining a benefit notwithstanding its importation. The offence was undoubtedly completed notwithstanding the interception of the three packages by
Customs, but that intervention shortly after the pentedrone crossed the border denied the opportunity for any unlawful benefit to be derived from those particular importations.
[41] Furthermore, unlike in Pulman and Murray, the issue for determination is not limited to whether the importation of the three packages of pentedrone represented an unlawful benefit from significant criminal activity. A further issue that arises in the present case is whether the presumed value of the benefit set out in the Commissioner’s application, which predominantly relies on the valuation of the three intercepted packages, can be rebutted.
[42] In both Pulman and Murray neither respondent actually personally benefitted; neither in Mr Pulman’s case from the receiving of the cash, nor in Mr Murray’s case from being in possession of the drug. The passing on of the cash in Pulman and the intervention of the police by stopping Mr Murray’s vehicle meant neither offender received an actual benefit. However, in each case what was important was the opportunity or chance each had to benefit from the unlawful criminal activity which resulted in them having possession or control over the cash received from the illegal activity or the drugs the subject of the charge.
[43] I have considered closely, in the circumstances of the present case, whether despite the pentedrone not having come into the possession of Mr McDonald or his confederates, the importation at least provided them with the “chance” of benefitting from the criminal activity.9 In both Pulman and Murray the factual narrative disclosed the opportunity or chance to derive a benefit from the criminal activity, namely to divert the cash or to sell the methamphetamine. The fact that neither occurred did not prevent the chance or opportunity to do so from being a benefit to which a value could be ascribed.
[44] However, in the present case, the seizure of the three importations prevented Mr McDonald and his associates from having the opportunity or chance to derive a benefit from the importation of those particular packages of pentedrone. The present case is distinguishable from Pulman and Murray because in each of those cases the
9 Section 7.
respondents possessed the proceeds or property (in the form of cash or drugs) which in their hands represented a benefit derived from the significant criminal activity. While in each case they did not convert the benefit into a personal gain for themselves, the opportunity or chance was there for them to do so.
[45] In my view, Lang J’s approach in Pulman and that of Gendall J’s subsequently in Murray were dependent upon the receipt of the benefit of the offending. In Pulman, the Crown had argued that Mr Pulman unlawfully benefitted from his criminal activity as soon as he received the cash and that how he then dealt with the cash was of no moment. His Honour acknowledged that, at first sight, the Commissioner’s approach would appear to produce a harsh outcome, particularly as Mr Pulman immediately handed the proceeds of the sale of the drugs to his employer and did not therefore derive any financial reward as a result of his criminal activity. However, Lang J concluded that the application of s 7 meant that Mr Pulman undoubtedly received a benefit from his criminal activity. He noted that Mr Pulman had not gifted the drugs but had sold them to purchasers for $100 per packet. Importantly, Lang J held that it was the receipt of cash in those circumstances which, in his view, amounted to the derivation of a benefit from criminal activity.
[46] In the present case, in the absence of the imported drugs being received, which of itself, without more, would represent a benefit, there was no opportunity for either Mr McDonald or his associates to derive a benefit from the importation and, even if that was capable of representing a benefit, it was one that held no value in the absence of the pentedrone being received. Mr McDonald need only point to that fact to rebut that part of the Commissioner’s calculation of the value of the unlawful benefit which is reliant on the street value of those three intercepted packages of pentedrone.
[47] It follows from my conclusion that I do not consider the Commissioner can, at least directly, rely on the value of the three packages of pentedrone which were never received by Mr McDonald or his associates as a benefit which had value. In the absence of those drugs being received, they did not amount to the derivation of a benefit from the significant criminal activity. To that extent, Mr McDonald has succeeded in his challenge to the $133,720 figure included in the Commissioner’s application, to which the presumption provided by s 53(1) of the Act applies.
Valuation of the benefit from the earlier importations
[48] However, the Court is still charged with determining the value of the benefit derived from the criminal activity. Mr McDonald maintains it is only some $5,000-
$6,000, but I consider the benefit of the offending to be well in excess of such a figure.
[49] In assessing the value of the benefit, the Court is entitled to draw on evidence of the value of the pentedrone and the number of importations which Mr McDonald admitted had occurred – some 10 to 12. During the intercepted conversation with his co-offender, he referred to amounts of pentedrone that had previously been imported.10 Mr McDonald in his evidence denied that the figures referred to in that excerpt related to weights. However, he was unable to explain his reference in that passage to “half a kilogram at a time...”, and I consider it obvious that he was referring to amounts of pentedrone that had previously been imported.
[50] It can be ascertained from Mr McDonald’s statement to his associate that “500s” is a reference to 500 g, being half a kilogram. He refers to the “first one” being only “30 or 50”, which I find to be a reference to 30 or 50 g, and they progressed up to “half a kilogram at a time”. Mr McDonald remarks that they were “getting 500s and then they kept getting stopped so we dropped back to...”. The importation of the pentedrone took place over a considerable period before the interception of the last three packages and Mr McDonald’s arrest. It appears from Mr McDonald’s statement that the amounts imported varied over that period from as much as half a kilogram to, as Mr McDonald refers, 30 or 50 g when they first began.
[51] Taking a conservative approach, I am satisfied, on the balance of probabilities, that based on the 10 importations admitted by Mr McDonald, there must have been at least one importation of half a kilogram of pentedrone, but very likely more. Proceeding on the basis that the other nine importations could have been as little as 30 g at a time, a very conservative calculation of the amount of pentedrone imported over the period of the offending is 770 g.
10 See [31].
[52] There was some challenge to the accuracy of Detective Sergeant Beswick’s evidence regarding the street price of pentedrone. Detective Sergeant Beswick acknowledged that it was a relatively rare drug and there was only limited information regarding its price. Information obtained from the National Drug Intelligence Bureau had one record of street pricing information in relation to pentedrone which indicated a price of between $100-$150 per gram or $30 per capsule. That information specifically related to the Southland region. A typical quantity of pentedrone contained in a capsule would be 100 mg or 0.1 of a gram. Accordingly, one gram would result in the production of 10 capsules at $30 each, which results in a gram of pentedrone in capsule form being worth $300. Detective Sergeant Beswick took a midpoint of $150 per gram in carrying out his valuation exercise, which I consider to be a reasonable approach.
[53] Evidence was also received from Detective Sergeant Boucher, who is very experienced in the investigation of drug offending and was permitted to provide opinion evidence. He noted that pentedrone, like methylone and ethylone, are all sold as MDMA or Ecstasy “replacements” on the street for the same value that MDMA would predominantly be sold for. Information he provided largely corroborated the approach taken by Detective Sergeant Beswick. His evidence was that MDMA replacements on the street currently sell from $25 to $40 per tablet, with tablets containing dosages of between 100-200 mg per tablet. Street values therefore range from $100-$250 for the Ecstasy substitutes of which pentedrone is one.
[54] Based on an extremely conservative assessment, Mr McDonald and his co- offenders must have imported at least 770 g over the course of 10 importations. At
$150 per gram, the benefit from that offending can be calculated as amounting to
$115,500.
[55] Mr Williamson sought to argue on behalf of Mr McDonald that his client should only be liable for a specific portion of the overall proceeds of the criminal enterprise. However, that argument was based upon me accepting that Mr McDonald was only paid cash totalling some $6,000 for having played a limited role in the offending. I have rejected that contention. It follows that, being satisfied that Mr McDonald played a full part in the joint criminal venture and that benefits derived
from the significant criminal activity were received jointly by him together with his co-offenders, he is, as a result, liable for the full amount of the benefit obtained.11
[56] While Mr Williamson did not press the issue, it is also clear that the value of the benefit is to be assessed with reference to the total amount of money or property obtained or received, rather than on the basis of the net profits generated from the criminal activity.12
The cash analysis
[57] For the purposes of the pentedrone offending, the Commissioner also relied upon the evidence of a financial analyst, Ms Melanie Van der Pol, in calculating the unlawful benefit derived from the importation of the pentedrone. Ms Van der Pol’s calculation was based on identifying unknown and unexplained sources of cash received into Mr McDonald’s bank accounts, which totalled some $24,820. It originally fell to Mr McDonald to rebut that evidence which made up part of the figure set out in the Commissioner’s application, which would otherwise be presumed to be the value of the unlawful benefit derived from the significant criminal activity. However, as the figure relied upon by the Commissioner in the application has already been displaced, the presumption no longer applies.
[58] In response to Ms Van der Pol’s analysis, Mr McDonald claimed, in his affidavit of 30 November 2015, that there were no unexplained cash deposits in his bank records relating to the 43 month period of analysis undertaken by Ms Van der Pol between 1 April 2010 and 30 November 2013. Mr McDonald suggested that the only money that would have gone into his account that might “be unexplained” would have related to the sale of second-hand cars, and that he would often buy and sell second-hand cars and parts.
11 Solicitor-General v De Bruin HC Auckland CIV-2002-404-3302, 9 August 2006; Solicitor- General v Rhodes HC Auckland CIV-2007-404-3773, 16 February 2010; R v May [2008] UKHL 28, [2008] AC 1028; R v Rooney [2010] EWCA Crim 2, as discussed in Commissioner of Police v Tang [2013] NZHC 1750.
12 Commissioner of Police v Tang, above n 11, at [21]-[25]; Pulman v Commissioner of Police, above n 2, at [29]-[32]; R v Pedersen [1995] 2 NZLR 386 at 389.
[59] Mr McDonald filed a further affidavit, dated 22 July 2016, in which he sought to explain a number of the cash deposits. However, in relation to many of the transactions identified by Ms Van der Pol, no explanation was provided apart from Mr McDonald’s general explanation that on occasions he would make cash withdrawals from other accounts and then physically take the cash and deposit it into other accounts in order to increase the balance when he knew payments were due from that particular account. Ms Van der Pol, when questioned in cross-examination about her view of that explanation, refused to accept, in today’s modern banking world, that people would deal in cash rather than make electronic transactions. I do not accept Mr McDonald’s evidence that he would have withdrawn large amounts of cash and physically taken it from one bank to another for the purposes of depositing it into another account. He would have known his bank account numbers and if he wished to transfer sums from one account to the other it would have been a simple exercise to have made an electronic transfer. I therefore reject that explanation.
[60] However, in the absence of any evidence to the contrary and the Commissioner being able to rely upon the presumption for the purposes of his application in relation to the pentedrone importation, where Mr McDonald has identified particular cash transactions as relating to him trading, either for himself or on behalf of others, in mechanical parts, motor vehicle equipment, engines and the like, I am unable to be satisfied that in the face of those explanations I can still draw the inference that those transactions, albeit involving cash, represent the proceeds from the importation offending.
[61] There is, however, one exception which relates to the deposit of $3,050 on 29 November 2012. Mr McDonald in his affidavit said that this was money deposited to pay for iron for a shed to be constructed at the Wallacetown property. He said he obtained $1,000 from a Mr Edgerton and that $2,000 was from him. Mr McDonald, under cross-examination, maintained that the $2,000 from him was sourced from a Southland Building Society mortgage account, he having borrowed money from the bank to build the shed. The difficulty with that explanation is that this loan was not obtained until 6 December 2012 and could not have been the source of the cash. When coupled with the unlikelihood of Mr McDonald having physically withdrawn the cash
for the purpose of depositing it in another account, I consider Mr McDonald’s explanation of the $3,050 is false.
[62] Mr McDonald only made matters worse when, after the discrepancy was pointed out to him in cross-examination, he sought to explain that it must have been sourced from earlier loans that he took out in 2009, some three years prior. If the 2009 loan represented a credit facility which was still available to him three years later, then clearly a record of drawing $2,000 from that account in November 2012 would have been available.
[63] Mr Donnelly submitted that Mr McDonald’s demonstrably false explanation in relation to the $3,050 cash deposit of 29 November 2012 should undermine the balance of his evidence relating to the other cash deposits. There is some substance in that submission. I found Mr McDonald’s evidence vague. With the exception of one transaction, it was unsupported by any supporting documents and while persons to whom he said he had sold equipment were named, no one else was called to support the particular transactions which Mr McDonald claimed were genuine. However, as I have already observed, the Commissioner cannot rely upon the presumption and, in respect of those other transactions which Mr McDonald proffered some explanation, I consider that to be sufficient in the circumstances to prevent me from drawing the inference from Ms Van der Pol’s evidence that those particular cash deposits were sourced from the serious criminal activity.
[64] Ms Van der Pol’s analysis arrives at a figure of $24,820 as being the benefit from an unknown source of cash income. Mr McDonald has provided an explanation for $12,470 which I consider I am obliged to take cognisance. Putting to one side those amounts referred to in Mr McDonald’s affidavit for which he has no explanation and the $3,050 being the cash deposit of 29 November 2012, Ms Van der Pol’s calculation must be reduced by $12,470. This leaves a balance of cash income from an unknown source, which may reasonably be inferred as being derived from the importation of pentedrone, of $12,350.
[65] However, Ms Van der Pol’s cash analysis has now been overtaken by my findings regarding the value of the benefit derived from the pentedrone which was
imported during the period prior to the importation of the three intercepted packages of pentedrone. Both Ms Van der Pol’s analysis and the assessment of the benefit from the value of the drug imported relate to the same period. The unsourced cash which was the subject of Ms Van der Pol’s analysis is therefore overtaken by my assessment of the value of the benefit derived from the 10 importations which Mr McDonald admitted had occurred. The two separate calculations for the same period of the offending cannot be combined as they represent different ways of assessing the same benefit received from the criminal activity.
Conclusion as to unlawful benefit obtained from the importation of pentedrone
[66] It follows from my review of the parties’ respective cases that Mr McDonald did unlawfully benefit from significant criminal activity between November 2006 and June 2014, namely from the importation of a Class C controlled drug, pentedrone. I am satisfied that the value of that unlawful benefit, at a minimum, is $115,500 and that a profit forfeiture order should be made for that amount.
Did Mr McDonald obtain an unlawful benefit from his possession of methamphetamine for supply?
[67] I turn now to the Commissioner’s second application which relates to the methamphetamine offending. Mr McDonald claims that he held the bag of 112 gm of methamphetamine for a friend and that no benefit was received by him from his possession of the drug. He maintains he had no opportunity to profit from it because, he claims, he only found out immediately prior to his arrest that the methamphetamine was in his possession. Judge Callaghan sentenced Mr McDonald on the basis that he was a “caretaker” of those drugs. However, there is significant other evidence which it appears the sentencing Judge was not made aware of at the time of the disputed facts hearing.
[68] In addition to the circumstances summarised at [9]-[11], three plastic containers were located on a dresser in Mr McDonald’s bedroom. These were the same type of plastic containers found in the toolbox. One of the plastic containers located on the dresser contained a slight powdery residue. A subsequent chemical test of the container returned a positive result for methamphetamine. Two sets of scales,
not one, were located in the kitchen of the address. Both were small electronic scales capable of weighing minute amounts as low as 0.01 of a gram and are not the type of scales used for cooking or food preparation. Detective Sergeant Boucher’s evidence was that these types of electronic scales are typically used for breaking up quantities of drugs such as methamphetamine.
[69] After Mr McDonald was arrested and taken to the police station, the police realised they had not seized the two cell phones that were being used as surveillance devices at the address. They returned to Mr McDonald’s residence. While there, a man arrived at the address who was known to police. He was found to be in possession of a large amount of cash and a methamphetamine pipe. He had also concealed on his person a plastic container holding 3.5 g of methamphetamine and a plastic pill container containing 18.5 g of methamphetamine. In a waist bag another plastic container containing 3.5 g of methamphetamine and $1,700 in cash was found. Each of the two plastic containers containing 3.5 g of methamphetamine were identical to the containers found in Mr McDonald’s bedroom.
[70] These circumstances reveal that Mr McDonald’s claim of being ignorant of what was contained in the plastic bag until only moments before he sought to dispose of it over his fence is unbelievable. There is a reasonable inference that Mr McDonald has an association with the man found in possession of some 25.5 g of methamphetamine who visited his address later that morning and was found in possession of the same type of containers, containing set amounts of methamphetamine as that located at Mr McDonald’s address, one of which was found to contain traces of methamphetamine. Mr McDonald was clearly involved with the person who was apprehended by the police at his address, and I reject his claim of having no knowledge or involvement in the commercial quantity of methamphetamine located in his possession.
[71] The precise role of Mr McDonald in the trafficking of methamphetamine is not important. It makes no difference whether he was the custodian of the methamphetamine or had a more active role. The circumstances point to a much deeper level of participation in the supply of methamphetamine than he claims, but for present purposes that is of no consequence. The situation as it pertains to
Mr McDonald’s involvement with methamphetamine is the same as that which applied in Murray, the details of which I traversed earlier. Despite Mr McDonald’s contention that he was simply a custodian of the methamphetamine (which , if necessary, I would reject) and his claim of having received no benefit from carrying out that role, he clearly had charge of the methamphetamine and “always had the chance to profit from his criminal activity” from his possessing that drug. As in Murray, Mr McDonald always had the ability to keep or deal in that drug for his own benefit. As I have already noted, the evidence suggests that was indeed the case.
[72] The circumstantial evidence points to Mr McDonald as having played an active role in the distribution of methamphetamine. The two sets of scales and the containers, together with the visit by the person who appears to have been distributing the drug using the containers located at Mr McDonald’s address from where he was likely sourcing the methamphetamine, indicate an involvement by Mr McDonald in the distribution of the drug. However, it is not necessary for the Commissioner to prove that was the case.
[73] Mr McDonald was in control of a large quantity of methamphetamine. He had the “chance” to profit from his possession of the drug if, indeed, he had not already profitted from such criminal activity. He always had the ability himself to sell or divert the methamphetamine onto the market to provide himself with a personal benefit. The unlawful benefit in this case emanates from Mr McDonald being in possession of a large and valuable quantity of the drug and his ability to thereby deal in or dispose of the methamphetamine as he saw fit.
Conclusion as to unlawful benefit obtained from the possession of methamphetamine
[74] For these reasons, I conclude the Commissioner has proved on the balance of probabilities that during the relevant period that Mr McDonald unlawfully benefitted from significant criminal activity in terms of ss 53 and 55 of the Act and that a profit forfeiture order should be made. There was no dispute as to the Commissioner’s assessment of the value of the methamphetamine.
Result
[75] The Commissioner’s application as it relates to the importation of pentedrone succeeds and a profit forfeiture order is made in terms of s 55 of the Act against Mr McDonald, on the following terms.
(a)The value of the benefit determined in accordance with s 53 of the Act is $115,500.
(b)The maximum recoverable amount is $115,500.
(c)The following property in terms of this order is to be realised or disposed of under s 83(1) of the Act:
(i)the proceeds of the sale of 20 Dundee Street, Invercargill;
(ii)the property situated at 10 Largs Street, Wallacetown; and
(iii)the 2010 Harley Davidson Dyna motorcycle, registration A8BJA.
[76] The Commissioner’s application as it relates to the methamphetamine succeeds and a profit forfeiture order is made in terms of s 55 of the Act against Mr McDonald on the following terms:
(a)the value of the benefit, determined in accordance with s 53 of the Act, is $100,700;
(b)the maximum recoverable amount is $100,700; and
(c)the following property in terms of this order is to be realised or disposed of under s 83(1) of the Act:
(i)the proceeds from the sale of 20 Dundee Street, Invercargill;
(ii)the property at 10 Largs Street, Wallacetown; and
(iii)the 2010 Harley Davidson Dyna motorcycle, registration A8BJA.
The motorcycle
[77] The motorcycle was never seized by the police and Mr McDonald’s evidence was that it has been broken down and sold by him as parts. It may therefore be the case that this item of property no longer exists. However, in the circumstances, I see no prejudice to Mr McDonald from listing the motorcycle as an item of property to which the order is subject, notwithstanding it may never be able to be realised.
Costs
[78] If costs are sought by the Commissioner and counsel are unable to agree, they may file memoranda sequentially, which will be referred to me and I will decide that issue on the papers.
Solicitors:
Preston Russell Law, Invercargill
Malcolm McKenzie Law Ltd ta Hewat Galt, Invercargill
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