Commissioner of Police v Nabawi
[2021] NZHC 2413
•15 September 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-1429
[2021] NZHC 2413
UNDER Criminal Proceeds (Recovery) Act 2009 BETWEEN
COMMISSIONER OF POLICE
Applicant
AND
JAMAL NASSER NABAWI
Respondent
Hearing: 11, 12 February 2021, 18 March 2021 Appearances:
M R Harborow and C A Stubbington for Applicant J M Matheson and M Shabani for Respondent
Judgment:
15 September 2021
JUDGMENT OF DUFFY J
This judgment was delivered by me on 15 September 2021 at 2.15 pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland Shabani Law Ltd, Auckland
J Matheson, Barrister, Auckland
COMMISSIONER OF POLICE v NABAWI [2021] NZHC 2413 [15 September 2021]
[1] The Commissioner of Police (the Commissioner) applies on notice for restraining and further orders, under ss 24 and/or 25 of the Criminal Proceeds (Recovery) Act 2009 (CPA), over property belonging to Jamal Nasser Nabawi.1 Mr Nabawi opposes the application.
[2] The Commissioner alleges Mr Nabawi has unlawfully benefited from tax evasion through his failure to meet obligations under ss 143, 143A and 143B of the Tax Administration Act 1994 (TAA). Failure to file tax returns and/or providing the Inland Revenue Department (IRD) with false or misleading information constitutes offences under those provisions.2 The Commissioner contends that this warrants him bringing claims against Mr Nabawi under the CPA for the recovery of those benefits. Further, the Commissioner seeks restraining orders under ss 24 and 25 until the claims are substantively determined.
[3] Mr Nabawi denies he has evaded tax and argues, therefore, that he has not committed any offences under the TAA. Further, he says that tax evasion is not the type of offence for which recovery claims can be brought under the CPA. Accordingly, the present application should be refused.
[4] The application raises a novel legal issue as to whether the proceeds of tax evasion are recoverable under the CPA. It is also necessary to determine disputed factual issues as to whether Mr Nabawi has committed tax offences in terms of ss 143, 143A and 143B of the TAA. I propose to address the legal issue first.
Recovery of proceeds of tax evasion
[5] The disputed legal issues require me to ascertain: (a) whether the alleged evasion of tax obligations can result in Mr Nabawi being seen to have derived property and/or benefits that are recoverable under the CPA; and if so, (b) whether ss 24 and 25
1 An application for without notice restraining orders was granted by Powell J on 2 September 2020. See Commissioner of Police v Nabawi HC Auckland CIV-2020-404-1429, 2 September 2020. These orders remain in place until the determination of the current application.
2 Tax Administration Act 1994, s 143: Failure to file a tax return, and/or provide relevant information to IR, constitutes an absolute liability offence. However, a respondent who is able to prove that the required information was not within their knowledge, possession or control has a statutory defence under s 143(2)(a). The maximum penalty for a first conviction under s 143(1) is a fine of $4,000.
can be engaged to prevent their dissipation until a substantive determination on their recovery is made.
[6] The Commissioner contends that the proceeds of the alleged tax evasion now take the form of Mr Nabawi’s property as follows (collectively, the Property):
(a)2017 Toyota Hilux, [redacted], registered to Mr Nabawi (Hilux);
(b)$58,450 cash, stored inside the Hilux (Cash); and
(c)Credit balance of ANZ Bank account [redacted] in the name of Mr Nabawi (Bank Funds).3
[7] Mr Nabawi was the sole director of Premium Plasterboard NZ Limited (Premium Plasterboard) between September 2014 and December 2018. At the time he attracted the Commissioner’s attention he was director of another company Plaster Squad Limited.
[8] A financial investigation into Mr Nabawi’s affairs by the Commissioner’s Asset Recovery Unit (CARU) revealed Mr Nabawi’s only declared income for the 2015 and 2016 tax years was from his then employer General Distributors Limited (trading as Countdown supermarket) where he earned a gross income of $11,353. For the tax years from 2017 to 2020 his total declared income was $10,360.
[9] However, approximately $1,314,161 was deposited into Mr Nabawi’s personal and business bank accounts during the relevant time. Tanya Thompson, a forensic accountant with CARU, has deposed that deposits totalling $1,080,482 in Mr Nabawi’s personal bank accounts can be attributed to business income for the financial years between 16 January 2013 and 15 January 2020. None of those funds were declared to the IRD. Ms Thompson’s assessment is that Mr Nabawi should have paid $118,072 in Goods and Services Tax (GST) and $250,678 in income tax. Ms Thompson also identified $408,942 in undeclared business income in Premium Plasterboard’s bank accounts between 27 July 2016 and 15 January 2020.
3 As at 9 September 2020 these funds stood at $107,486.09.
Ms Thompson’s assessment is that the company should have paid $53,340 in GST and
$99,568 in income tax. The overall total of evaded tax is therefore approximately
$521,659.
[10] The bulk of the undeclared income appears to have been received from 2015 onwards. The CARU investigation showed Mr Nabawi had received the following significant deposits into his personal bank accounts:
(a) $140,028 in 2015; (b) $184,234 in 2016; (c) $362,360 in 2017;
(d) $159,456 in 2018; and
(e) $234,402 in 2019.
[11] The Commissioner argues that there has been an intentional and deliberate omission to file accurate tax returns, provide accurate information to the IRD, and pay tax. These omissions have enabled Mr Nabawi to purchase the Property. As he has “unlawfully benefited” from the tax evasion in excess of $30,000, the offending falls within the s 6 definition of “significant criminal activity” for the purposes of ss 55 and 25 of the CPA.4
[12] The Commissioner submits that Mr Nabawi’s interest in the Property is unambiguous: the Bank Funds are held in his personal bank account, the Hilux is registered to him, and the Cash was found in the Hilux. When questioned by Police, Mr Nabawi stated that the cash was his and that he intended to purchase another vehicle with it.
4 Section 4(1) of the Criminal Proceeds (Recovery) Act 2009 (CPA) provides for the restraint and forfeiture of property derived as a result of significant criminal activity without the need for a conviction. Section 6(1)(b) of that Act provides that “significant criminal activity” means an activity engaged in by a person that if proceeded against as a criminal offence would amount to offending from which property, proceeds or benefits of a value of $30,000 or more have, directly or indirectly, been acquired or derived.
[13] The Commissioner also argues that the Hilux is specific property which is “tainted” for the purpose of s 24 of the CPA as it was acquired, either wholly or in part, with the proceeds of tax evasion.
[14] Accordingly, the Commissioner submits that restraining orders under ss 24 and 25 of the CPA are warranted, as there are reasonable grounds to believe that:
(a)Mr Nabawi has unlawfully benefited from significant criminal activity;
(b)Mr Nabawi has an interest in the Property; and
(c)The Hilux is tainted property.
[15] Mr Nabawi bases his legal opposition to the application on the argument the CPA cannot be applied to tax evasion of the type alleged here because it does not generate a “benefit” within the meaning of that term in the CPA. Mr Nabawi argues that tax evasion does not result in any gain of property or wealth; all that occurs is the offender escapes (or seeks to escape) a liability by avoiding the statutory obligation to pay a part of his or her lawfully gained income to the Commissioner of Inland Revenue. This circumstance cannot be viewed as analogous to a positive acquisition or derivation of proceeds or property. Accordingly, any benefits Mr Nabawi may have received from the alleged offending cannot properly be defined as “property” for the purposes of the CPA, and are therefore beyond the scope of this Act.
[16] Mr Nabawi acknowledges that some tax offences (excluding his alleged offending) are within the scope of the CPA. In this regard he distinguishes between the type of tax offence which yields a net increase in wealth (such as a GST refund obtained through fraud) and non-payment of taxes owed under law (as alleged here) which merely avoids or postpones a decrease in a person’s net wealth. Thus, a vehicle purchased with a fraudulently obtained GST refund would be tainted property, and any cash remaining would be criminal proceeds, for the purposes of the CPA. On the other hand, a vehicle purchased with money lawfully earned, as well as fungible assets (cash) accrued through lawful employment, cannot be classed as criminal proceeds simply because a tax debt to the IRD is owed. Accordingly, Mr Nabawi argues that
his Property is not a “benefit” and the Hilux is not “tainted property” for the purposes of recovery under the CPA.
[17] Mr Nabawi also argues that an alternative and better remedy is available, given the statutory powers of the Commissioner of Inland Revenue under the TAA, which specifically provides for the assessment and collection of evaded tax.
Statutory framework
[18]Section 3 of the CPA sets out its purposes:
3Purpose
(1)The primary purpose of this Act is to establish a regime for the forfeiture of property—
(a)that has been derived directly or indirectly from significant criminal activity; or
(b)that represents the value of a person’s unlawfully derived income.
(2)The criminal proceeds and instruments forfeiture regime established under this Act proposes to—
(a)eliminate the chance for persons to profit from undertaking or being associated with significant criminal activity; and
(b)deter significant criminal activity; and
(c)reduce the ability of criminals and persons associated with crime or significant criminal activity to continue or expand criminal enterprise; and
(d)deal with matters associated with foreign restraining orders and foreign forfeiture orders that arise in New Zealand.
Section 4 provides an overview of its provisions:
4Overview
(1)In general terms, this Act—
(a)provides for the restraint and forfeiture of property derived as a result of significant criminal activity without the need for a conviction; and
(b)sets out certain procedural matters relating to the forfeiture of instruments of crime if a conviction has been or may be
entered. Many aspects of the conviction-based forfeiture regime are included in the Sentencing Act 2002.
[20]Under s 5 “benefit” and “property” are broadly defined:
benefit includes proceeds and property
...
property—
(a)means real or personal property of any kind—
(i)whether situated in New Zealand or a foreign country; and
(ii)whether tangible or intangible; and
(iii)whether movable or immovable; and
(b)includes an interest in real or personal property.
[21]Similarly, s 5 gives “tainted property” a broad meaning:
tainted property—
(a)means any property that has, wholly or in part, been—
(i)acquired as a result of significant criminal activity; or
(ii)directly or indirectly derived from significant criminal activity; and
(b)includes any property that has been acquired as a result of, or directly or indirectly derived from, more than 1 activity if at least 1 of those activities is a significant criminal activity.
[22] “Significant criminal activity” is defined in s 6 as an activity amounting to a criminal offence which is (a) punishable by 5 or more years’ imprisonment or (b) yields, directly or indirectly, property, proceeds or benefits of $30,000 or more.5 This definition does not require active criminal charges or prior convictions in connection with the offending.6
[23] Section 7 gives the phrase “unlawfully benefited from significant criminal activity” a broad meaning:
5 Section 6(1).
6 Section 6(2).
7Meaning of unlawfully benefited from significant criminal activity
In this Act, unless the context otherwise requires, a person has unlawfully benefited 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).
[24] The broad definitions the CPA provides for “property”, “benefits” and “tainted property” underscore Parliament’s evident intention to ensure that all forms of fiscal benefit flowing from significant criminal activity are capable of being caught by the Act’s provisions.
[25] Section 15 of the CPA makes it clear that a criminal conviction is not required before any significant criminal activity can sustain a civil forfeiture order. Further, there is no requirement in the CPA that the subject who profits from the unlawful benefit, or who acquires/derives the tainted property, has undertaken or actively participated in the criminal activity.7 However, the unlawful benefits and/or tainted property must be knowingly derived/acquired by the subject.
[26] There are two types of forfeiture order under the CPA. Section 50 provides for the forfeiture of tainted property and s 55 provides for the forfeiture of the profits from the significant criminal activity:
50 Making assets forfeiture order
(1)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.
(2)Subsection (1) is subject to section 51.
(3)The Court must specify in an assets forfeiture order the property to which the order applies and that the property—
(a)vests in the Crown absolutely; and
(b)is in the custody and control of the Official Assignee.
(4)Despite subsection (1), the Court may not make an assets forfeiture order in relation to property that no person has claimed an interest in,
7 Section 7.
unless the Court is satisfied, on the balance of probabilities, of the following additional matters:
(a)that a restraining order was earlier made in relation to the same property; and
(b)that the restraining order has been in place for a period of at least 1 year; and
(c)that the Commissioner has contacted or made all reasonable efforts to contact any person the Commissioner believes may have an interest in the property.
(5)If any property that is land is vested in the Crown absolutely as a consequence of an assets forfeiture order made under subsection (3), an interest recorded on the title to the land that is not affected by the assets forfeiture order is not extinguished.
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 benefited 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.
[27] Where profit forfeiture orders are sought, s 53 creates a rebuttable presumption that the value of the unlawful benefit derived from significant criminal activity is that stated in the Commissioner’s application for such order.
[28] To ensure the subject proceeds are not dissipated before a forfeiture order can be obtained, the CPA makes provision for restraining orders in ss 24 and 25. These provide as follows:
24Making restraining order relating to specific property
(1)A court hearing an application for a restraining order relating to specific property may, if the court is satisfied it has reasonable grounds to believe that any property is tainted property, make an order that the property (restrained property)—
(a)is not to be disposed of, or dealt with, other than is provided for in the restraining order; and
(b)is to be under the Official Assignee’s custody and control.
(2)A restraining order may be made under subsection (1) whether or not there is a respondent in relation to whom the restraining order relates.
25Making restraining order relating to all or part of respondent’s property
(1)A court hearing an application for a restraining order relating to all or part of a respondent’s property may, if the court is satisfied it has reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity, make an order that the property it specifies in the order (restrained property)—
(a)is not to be disposed of, or dealt with, other than is provided for in the restraining order; and
(b)is to be under the Official Assignee’s custody and control.
(2)A restraining order made under subsection (1) may relate to any of the following:
(a)all of a respondent’s property (including property acquired after the making of the order):
(b)specified parts of a respondent’s property:
(c)all of a respondent’s property (including property acquired after the making of the order) other than specifically excluded property.
Discussion
[29] Put shortly, the language and structure of the CPA provides a broad scope for the recovery of criminal proceeds, property and benefits that are derived directly or
indirectly from significant criminal activity.8 In particular, the forfeiture regime aims to “eliminate the chance” of profiting from significant criminal activity, to deter such activity, and to restrict the extension or expansion of criminal enterprises.9 Consistent with such breadth of purpose, Parliament has chosen to provide for the restraint and forfeiture of such property without any need for a prior conviction for the subject criminal activity.10 The Court of Appeal has described the CPA’s purpose provision as “strongly expressed”.11 Similarly, the Supreme Court has described it as “aspirational” and providing a “clear and emphatic signal as to the legislative purpose”.12 Against this background it seems to me that in principle there is no reason why the CPA should not be applied to tax evasion, providing such offending and the profits it generates meet the CPA’s requirements.
[30] There was a time when tax legislation was “construed vigorously in favour of the taxpayer against the state: the taxpayer was caught only if the Act on its narrowest interpretation covered him or her”.13 A narrow approach to the application of tax legislation would not have sat well alongside the broad purposive approach of the CPA. This could have provided a reason for interpreting the CPA in a way that excluded tax offending. However, the Supreme Court has determined that tax legislation must be interpreted on the same basis as any other legislation:14
In this country, the general approach to the interpretation of a revenue statute is much the same as for other statutes. The purpose of a taxing provision may be a guide to its meaning and intended application. But, as Burrows and Carter point out, in most cases the only evidence of that purpose is the detailed wording of the provision and the safest method is to read the words in their most natural sense. In construing and applying a taxing provision, a court leans neither for nor against the taxpayer, but should require that before the provision is effectual to make the taxpayer amenable to the tax, it uses words which, on a fair construction, must be taken to impose that tax in the circumstances of the case.
8 Section 3(1).
9 Section 3(2)(a), (b) and (c).
10 Section 4(1)(a).
11 Haywood v Commissioner of Police [2014] NZCA 625, at [29].
12 Marwood v Commissioner of Police [2016] NZSC 139, [2017] 1 NZLR 260, at [12].
13 Ross Carter Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis, Wellington, 2015) at 234.
14 Stiassny v Commissioner of Inland Revenue [2012] NZSC 106, [2013] 1 NZLR 453 at [23] (footnotes omitted).
[31] Accordingly, there is no tension between the interpretation of tax legislation and the CPA. Each requires an approach that seeks to ensure the legislative purposes are fulfilled. It follows that an alleged tax evader is not disadvantaged if he or she faces recovery proceedings under the CPA rather than proceedings under the TAA. Under either Act, a Court will strive to ensure the legislative purposes are met. Moreover, when it comes to tax evasion and the criminal penalties in Part 9 of the TAA, the purposes of the TAA and the CPA align with each other. Both exist to ensure an offender does not profit from his or her criminal activity.
[32] It is against this background that I address the question of whether a knowing omission to discharge income tax obligations that would have led to payment of income tax and GST have resulted in Mr Nabawi deriving property, proceeds or benefits that are recoverable under the CPA, and are therefore susceptible to restraining orders made under ss 24 and/or 25 of that Act.
Can tax evasion satisfy the CPA’s requirements for orders under ss 55 and 25?
[33] The alleged tax evasion meets both arms of the statutory definition of “significant criminal activity” in s 6.15 As to whether Mr Nabawi has profited from tax evasion, the focus here is on whether Mr Nabawi’s alleged failure to meet the obligations imposed on him by ss 143, 143A and 143B has led him to “directly or indirectly derive a benefit” from that activity.
[34] Under s 5 of the CPA “benefit” is defined as including “proceeds” and “property”. Property is further defined in s 5, but proceeds is not. The ordinary meaning of “proceeds” is the product of enterprise, an outcome or profit.16 The terms used in the CPA and the inclusive nature of the definition of “benefit” suggest that Parliament intended this term to have the broadest possible meaning.17 The words “directly or indirectly derive a benefit” suggest that Parliament also intended the
15 The alleged offending involves property, proceeds or benefits that exceed $30,000. In addition the penalties for offending under either s 143A(1)(d) or s 143B(1) and (2) carry a maximum of 5 years’ imprisonment: See ss 143A(8) and 143B(4) respectively.
16 Oxford English Dictionary (2021, online ed.) Proceeds n. “That which proceeds, is derived, or results from something else; that which is obtained or gained by any transaction or process; an outcome; esp. the money obtained from an event, activity, or enterprise.”
17 The Court in Commissioner of Police v Snook [2018] NZHC 2537 found that “benefit” means pecuniary advantage, profit, or gain.
broadest scope possible when it came to understanding how a person might come to enjoy such a benefit. With this in mind, the enquiry here is whether the availability of additional disposable funds as a result of a failure to meet tax obligations can be regarded as a benefit that is derived either directly or indirectly from the decision not to discharge those obligations.
[35] Parliament has chosen to make an omission to file tax returns with the intention of evading tax payment a criminal offence.18 The practical effect of such an omission is that Mr Nabawi retains money which he should rightfully have paid to the IRD.
[36] I acknowledge that there is no suggestion that the income received by Mr Nabawi and Premium Plasterboard was earned illegally. Further, until the relevant tax period for declaring the income and paying tax has passed, any intent not to discharge those tax obligations will be executory and capable of being undone. But once that tax period is passed the omission to declare and pay tax on the subject earnings will be executed.
[37] Given the fungible character of money, it will not be possible to distinguish specific sums of money for which no tax declarations or payments were made at the relevant time from those for which tax was declared and paid. There is also the fact that declaration and payment of tax typically leaves a taxpayer with a net balance of legitimate disposable earnings that exceed the payable tax.
[38] However, the effect of alleged omissions to file tax returns and pay tax is that Mr Nabawi will have retained more legitimately earned funds than he should have done. In my view, this is capable of being regarded as a benefit derived from the unlawful omission to meet his obligations, and those of Premium Plasterboard, under ss 143, 143A and 143B of the TAA. If there is any doubt as to whether the benefit can be said to be “directly” derived from the omission, then I consider it can certainly be regarded as having been “indirectly” derived. The full extent of the disposable income that has been available to Mr Nabawi in the relevant period is due to his omission to meet his tax obligations. Money that should have been paid as tax by Mr Nabawi and Premium Plasterboard has remained with him for his personal use.
18 Sections 143, 143A and 143B.
[39] The unlawful benefit must be “knowingly” derived.19 I consider a “knowing” omission requires some degree of intentional activity and deliberation, which distinguishes it from an inadvertent omission. The latter can happen without action or thought on the part of the subject. In contrast, a knowing omission requires the subject to: (a) apply his or her mind to the question of whether or not to carry out the omission;
(b) form the intent to do so; and (c) enact that intent. In this context, a deliberate decision not to file tax returns or pay tax, which is acted upon, can of itself be regarded as a form of unlawful activity. Where, as is the case here, such activity can lead to penalties of up to five years’ imprisonment or the acquisition or derivation of financial benefits of $30,000 or more, the activity qualifies as “significant criminal activity” for the purpose of s 7 of the CPA.
[40] I am reinforced in this view by the fact that s 5(1) of the CPA provides that a person can be a recipient of an unlawful benefit even though he or she has not undertaken or participated in the criminal activity. Thus, Parliament has cast the net wide. There is no reason to think Parliament would have intended to exclude those who criminally offend by knowingly deciding not to perform statutory obligations in order to obtain a financial benefit.
[41] In Commissioner of Police v Dryland,20 Gilbert J found that money belonging to a tax evader who had neither declared nor paid tax on earnings from a firewood business was not tainted property that was open to restraint under s 24. The Judge considered the money was not acquired through, or directly or indirectly derived from, tax evasion. The requisite statutory linkage to significant criminal activity was found to be absent because the money had been legitimately earned prior to the tax evasion. This led Gilbert J to reject the proposition that the proceeds of tax evasion could be recovered under the CPA. 21
[42] I acknowledge that during the currency of a particular tax year the knowing omission to pay tax is still in the executory phase. Income need not be declared until the expiry of the statutory time frames for declaration. It is also possible that the cash
19 Section 7.
20 Commissioner of Police v Dryland HC Auckland CIV 2012-419-242, 30 August 2012.
21 At [21]-[22].
funds are profits from a previous year during which tax was declared and paid. However, once the time frame for declaration and payment has passed in any given tax year the offence of tax evasion is completed. Tax evaders will then have reached the stage where they have knowingly decided not to pay tax and have enacted that intention. Once this point is reached such persons will have more disposable funds on hand than they otherwise would have done. If the tax they have evaded paying exceeds
$30,000 their offending qualifies as significant criminal activity under s 6 of the CPA. Accordingly, provided tax evasion has reached the point of execution I see the outcome as being no different from other criminal offending that generates a profit. That profit can be used directly to acquire or derive benefits or property, or it can be used to achieve that outcome indirectly. With the latter the tax evader may be free to use legitimate funds to acquire or derive a particular discretionary benefit or property simply because other unavoidable and necessary expenses are met by using the funds that should have gone to pay the evader’s tax obligations. Put shortly, the subject would have had insufficient funds to acquire/derive the benefit/property and meet the expenses if tax had been declared and paid.
[43] Accordingly, I consider omissions by Mr Nabawi to meet his obligations under ss 143, 143A and 143B are capable of being regarded as unlawful benefits from significant criminal activity in terms of forfeiture orders under the first limb of s 55(1).
[44] The second limb of s 55(1) requires Mr Nabawi to have interests in property to which a forfeiture order can attach. All that is required here is that at the time the s 55 forfeiture order is made there is some property interest vested in Mr Nabawi from which the value of the ascertained profits from his significant criminal activity can be subtracted. Where these conditions are met, the Commissioner would have the legal basis for applying for a s 25 restraining order to preserve this property until the application for the forfeiture order is heard.
[45] If the necessary evidential foundation is established, I see no reason why Mr Nabawi’s Property should not be subject to a profit forfeiture order under s 55. It follows that there is no legal reason why this Property should not be eligible for restraint under a s 25 restraining order. Whether such order is made or not will turn
on whether the Commissioner can establish there are reasonable grounds for the Court to be satisfied the evidential requirements of s 25 are met.
Can tax evasion satisfy the CPA’s requirements for orders under ss 50 and 24?
[46] Whether the Hilux can be the subject of an assets forfeiture order under s 50 and therefore also be subject to a restraining order relating to specific property, under s 24, is a separate question.22 The answer turns on whether this vehicle meets the descriptions of “specific property” and “tainted property” in s 5. Once again, the CPA defines the scope of “specific property” and “tainted property” broadly.
[47] It is important to note that the “specific property” to which ss 50 and 24 apply is nothing more than property that is identifiable, whether or not there is an identifiable owner.23 The Hilux meets this definition.
[48] The Commissioner relies on the broad definition of “tainted property” to argue that the Hilux is susceptible to forfeiture under s 50 and restraint under s 24. The definition includes property that has been acquired, either wholly or in part, as a result of significant criminal activity, as well as property that is directly or indirectly derived from such activity. The latter part of this definition reflects the language used in s 7 to define an unlawful benefit from significant criminal activity. The only difference is that “tainted property” is property that is directly or indirectly derived from significant unlawful activity.
[49] Accordingly, once the Hilux passes the threshold requirement for being identifiable (which it does) the same reasoning process which has led me to conclude that tax evasion can meet the statutory requirements for orders under ss 55 and 25 applies here as well. Provided it can be shown that Mr Nabawi paid for the vehicle at a time when his disposable income was enlarged by his tax evasion, then the purchase
22 The Commissioner’s application on notice for restraining orders sought restraining orders under s 24 for the Toyota Hilux van (Hilux) and $58,450 cash located in the Hilux by police during the execution of a search warrant on 29 November 2019. In closing submissions at the hearing the Commissioner only sought for the Hilux to be restrained under either s 24 or 25 of the CPA. The request to restrain the $58,450 cash located in the Hilux pursuant to s 24 of this Act was no longer pursued.
23 Section 5.
of the Hilux was derived from significant criminal activity. Therefore, orders under ss 50 and 24 can be made.
[50] It follows that I reject Mr Nabawi’s arguments that tax evasion falls outside the scope of the CPA. Mr Nabawi is essentially arguing for a narrower application of the Act’s fundamental concepts than is indicated by the statutory language. His key contention is that tax evasion results in a “decrease in liability with no corresponding or associated acquisition of property”. Mr Nabawi suggests that tax evasion is “unique” in this regard, because the obligation to pay is avoided without the “reciprocal receipt of property”. Mr Nabawi concedes that all other criminal activities which involve the avoidance of an obligation to pay, such as credit card fraud, might be properly classed as generating a benefit because assets – either tangible or fungible
– are acquired in return for the crime. In contrast, Mr Nabawi argues that tax is a one- sided transaction, and the taxpayer receives nothing in return for their payment. In short, Mr Nabawi seeks to portray tax evasion as resulting in an “absence of liability”, and he argues that such a definition cannot fall within the scope of even the broadest definition of “property”.
[51] However, I do not consider the CPA requires the subject to owe a legally recognisable liability before its provisions are engaged. Nor do I understand the Commissioner to be arguing that here Mr Nabawi has unlawfully benefitted simply because he has avoided a tax liability. This view of matters is too short sighted. It overlooks the fact that by evading the liability to pay tax Mr Nabawi has arguably enjoyed more disposable income than would otherwise have been available to him. If there is an evidential basis for this proposition, then arguably all or part of the Property can be seen as acquired (either directly or indirectly) or derived (either directly or indirectly) from significant criminal activity.
Further factors to be considered
[52] There are two further factors to be considered; neither was directly touched on by the parties. The first is how to reconcile any statutory liability under the TAA to pay tax on undeclared income with the notion that failure to declare and pay tax will increase disposable income and facilitate either acquiring “tainted property” or
deriving “unlawful benefits” from tax evasion. The second is the need to recognise that undeclared income will comprise a portion that is to be paid in tax and a portion that the subject is entitled to retain for his or her own benefit.
[53] Regarding the first factor, tax evasion does not cause the tax liability under the TAA to evaporate; it merely avoids it. A tax evader will only profit from the offence if he or she is successful in avoiding detection. Once the offence is detected, absent any statutory bar against recovery, the benefits derived from the offending may be cancelled out by actions taken by the IRD under the TAA. The existence of live tax liabilities may mean that profits derived from tax evasion are more notional than real. Whilst a tax evader may have enjoyed the extra disposable income tax evasion has brought him or her, such profits will sit alongside the tax liability he or she continues to owe. When the tax liability is enforced it may expunge what appeared beforehand to be profits from tax evasion. On the other hand, if the additional disposable income derived from tax evasion is used to acquire assets that rapidly inflate in value, the resulting profits may survive the effect of any tax recovery by the IRD.
[54] I was not informed regarding Mr Nabawi’s tax situation with the IRD and whether the IRD was taking steps to recover unpaid tax that he may owe. I consider it would have been helpful if the Commissioner had obtained evidence from the IRD on those matters. If the IRD takes no steps, then for the reasons I have already given I consider there are reasonable grounds to believe Mr Nabawi has profited from tax evasion. On the other hand, recovery action by the IRD may wipe out any profits the evasion has provided.
[55] Premium Plasterboard was liquidated in December 2018 and is now deregistered. The company’s tax liabilities are therefore no longer capable of being enforced.24 If this is so, undeclared funds earned by Premium Plasterboard but deposited into bank accounts under Mr Nabawi’s control may properly be regarded as unlawful benefits he has derived from tax evasion by Premium Plasterboard.
24 The Commissioner of Inland Revenue is a preferential creditor in cases of company insolvency, under the Companies Act 1993, sch 7(1)(1)(5), but payment will depend on available funds.
[56] As to the second factor, a taxpayer is entitled to retain a portion of legitimately earned funds as his or her personal income. The problem for the Commissioner is how to prove that specific assets or funds have been acquired or derived from funds that either wholly or in part should have been paid in tax.
[57] When the price of the subject assets fall within the realm of the funds a taxpayer has available to him or her it may be a difficult exercise to prove those assets have been acquired by or derived from funds that should have been paid in tax. Where the costs of everyday living plus the price of the asset exceed the sum to be paid in tax it could be said that but for the failure to pay tax the offender could not have acquired the asset and met necessary general expenditure without the benefit of the tax evasion. The asset would therefore be tainted property for the purpose of ss 50 and 24.
[58] Similar reasoning applies with forfeiture orders under s 55 and restraining orders under s 25. The Commissioner will need to prove that assets were acquired with additional disposable income the subject derived from tax evasion, rather than the portion of income he or she would have been entitled to retain.
[59] However, these exercises would seemingly require the Commissioner to provide evidence of accounting analyses that assessed the probability of a tax evader being unable to acquire/derive the tainted property/unlawful benefits without using funds that should have been applied to meet tax obligations. Without such evidence I find it difficult to see how the Commissioner could satisfy a court that the tainted property/unlawful benefits in question were acquired by or derived from tax evasion rather than paid for from legitimately earned funds that the taxpayer was entitled to apply for his or her own use.
[60] However, neither of the above factors provides good reason to construe the CPA in a way that would exclude its application to the present circumstances. The need for the Commissioner to balance tax liabilities against perceived profits/tainted property from tax evasion seems to me to be relevant to whether the Commissioner can establish an evidential basis for orders under the CPA rather than being a reason for finding tax evasion falls outside the jurisdictional scope of the CPA. The same applies for the second factor.
Conclusion on application of CPA to tax evasion
[61] For the reasons given above, I consider that in principle forfeiture and restraining orders under the CPA can be applied to tax evasion offending.
Is there an evidential basis for restraining orders?
[62] The remaining question is whether there is an evidential basis to support restraining orders as sought.
Relevant legal tests
[63] The CPA provides that the Commissioner may apply to the High Court for a restraining order, with or without notice, on specific property items or all/part of the respondent’s property.25 The application must identify the proposed restrained property, the respondent (if any) and any other persons with an interest in the relevant property.26
[64] Where a restraining order is sought in relation to specific property, under s 24, the Court must be satisfied that it has reasonable grounds to believe that the property is tainted property.
[65] Where the order sought relates to all or part of the respondent’s property, under s 25, the Court must be satisfied that it has reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity.
[66] Under either provision, the Court may make an order that the property is not to be disposed of, or dealt with, other than provided for in the restraining order, and placing it under the Official Assignee’s custody and control.27
[67] In relation to issuing a restraining order, the Court of Appeal has said that a judge “is not required to make a finding that the relevant property is tainted property or that the particular person did in fact unlawfully benefit from significant criminal
25 Sections 18, 20-25.
26 Section 19.
27 Sections 24(1)(a), (b) and 25(1)(a),(b).
activity”. Rather, all that is required of the judge is to find that there are “reasonable grounds to believe” the allegations. This is because the nature of a restraining order is a “temporary” measure to enable police to gather further evidence which may or may not lead to the more permanent consequence of a forfeiture order. The “without notice” applications of the Act reflect the fact that restraining orders are often sought under urgency, without the benefit of a full investigation.28 Consequently, this Court has observed that the “threshold for making restraining orders is therefore relatively low, consistent with their role as a ‘holding’ measure”.29
Submissions on the evidence
[68] The Commissioner contends that both Mr Nabawi’s declared personal income and Premium Plasterboard’s declared business income is significantly less than the funds each is shown to have received into their respective bank accounts. Further, Mr Nabawi lacks a credible explanation for the funds shown in those accounts.
[69] Mr Nabawi contends that he did not benefit from, and had no knowledge of, the alleged tax evasion. Specifically, his counsel cites extracts from statements given in evidence to argue as follows. First, Premium Plasterboard was a family business and traditional Afghan concepts of family mean a business/company is always controlled by the oldest male as the head of the family. Secondly, the head of the family was Mohammad Fahim Nabawi (Mr Nabawi’s uncle) who was referred to by Mr Nabawi as Fahim.30 Mr Nabawi said that Fahim and his brother Mustafa Hussein Nabawi controlled Premium Plasterboard and the earnings it received, although neither were legally directors. Thirdly, Mr Nabawi was only 18 years old when he started working for Fahim and Mustafa; Afghan culture required him to follow orders given by his older relatives without question; he was a vulnerable young man who was controlled and instructed by his uncles, who treated him as a “messenger” or “middleman”. Fourthly, Mr Nabawi did not exercise control over daily operations, governance, or financial matters for the company; he had no knowledge of the company’s tax obligations; he did not understand why a 50% shareholding in the company was transferred to him or why he was appointed as a director.
28 Vincent v Commissioner of Police [2013] NZCA 412, at [45] and [47].
29 Commissioner of Police v Li [2014] NZHC 479, at [8].
30 I shall also refer to this witness as Fahim.
[70] In the alternative, Mr Nabawi’s counsel submits that even if the Court finds that he has unlawfully benefited from significant criminal activity, the Court should use its discretion to discontinue the restraining order (or decline to impose a restraining order) in the interests of justice. His counsel submits that Mr Nabawi is a bright, capable, hardworking young man who has overcome a troubled childhood in Afghanistan and is attempting to make a new life for himself in New Zealand. While he has made some mistakes, he is not the type of criminal the Act was intended to target.
Analysis
[71] Based on the evidence relied on by the Commissioner it is obvious from the figures referred to earlier that a large part of income received by Mr Nabawi and approximately half the income received by Premium Plasterboard was not declared.
[72] Unusually for interlocutory hearings in civil proceedings, this hearing involved cross examination of witnesses called by the Commissioner. These included Fahim Nabawi who denied that he controlled Premium Plasterboard at the relevant times or that he was instrumental in that company evading its tax obligations.
[73] Mr Nabawi’s evidence was materially at odds with the evidence of Fahim Nabawi. Mr Nabawi gave extensive explanations which sought to place responsibility for the tax evasion on Fahim Nabawi. Mr Nabawi portrayed himself as the custodian of the undeclared funds at the direction of Fahim. It was therefore incumbent on Mr Nabawi’s counsel to cross-examine Fahim on (a) the explanations Mr Nabawi gave to implicate Fahim as the person responsible for the tax evasion and (b) whether as a rule of Afghani culture Mr Nabawi was obliged to defer to Fahim because he was the older male relative. However, there was no such cross-examination. The failure to cross-examine Fahim on the material differences between his evidence and that of
Mr Nabawi breaches s 92 of the Evidence Act 2006 and, in this case, reduces the weight to be given to Mr Nabawi’s evidence.31
[74] Mr Nabawi essentially attempted to disassociate himself from the business activities that had generated the income that is the subject of the tax evasion. He maintained that at all relevant times he acted under the direction of Fahim Nabawi. On multiple occasions he was confronted with evidence that pointed to him being a director of Premium Plasterboard who was in control of that company, and the person who held control of the bank accounts where large sums of money were deposited. He denied he had knowingly failed to meet either his personal tax obligations or those of Premium Plasterboard.
[75] Irrespective of the weakness of Mr Nabawi’s evidence resulting from the failure to discharge cross-examination duties, I did not find Mr Nabawi to be an impressive or persuasive witness. This is the principal reason why I found his evidence to be neither reliable nor credible. Where his evidence differed from that of the Commissioner’s witnesses, I found Mr Nabawi’s portrayal of the relevant events unpersuasive. It did not fit with the documentary evidence and I found the explanations Mr Nabawi gave to be implausible. I also find it implausible that Mr Nabawi could have managed to live on the total declared income of $10,360 for the tax years 2017 to 2020.
[76] The findings I make on the evidence are made in the context of an interlocutory hearing for restraining orders where the evidential threshold for making those orders is relatively low and consistent with their role as a holding measure. The test is that I must be satisfied there are reasonable grounds to believe the subject Property is either tainted property or that Mr Nabawi has unlawfully benefitted from tax evasion that passes the financial threshold for being significant criminal activity. I am not required
31 There was no application for recall of Fahim Nabawi for further cross-examination, nor would that course of action have been appropriate here. For a discussion on the importance of cross- examination where the opposing parties’ evidence conflicts see R v S (CA369/01) 19 CRNZ 442 at [18] to [19]. Whilst this was an appeal from a criminal trial the obligations s 92 imposes, and the impact on a fact-finder where there is a failure to discharge those obligations, are equally applicable in civil proceedings.
to find that that the Property is tainted property or that Mr Nabawi has in fact unlawfully benefitted from significant criminal activity in the form of tax evasion. 32
[77]The substantive hearing of the application for forfeiture orders under ss 50 and
55 will require the Commissioner to separate out the real long-term unlawful benefits/profits from those that are counterbalanced by a live, recoverable tax liability under the TAA. The Commissioner will also need to present evidence that provides a factual and counter factual analysis that shows to what extent the Property has been derived from additional funds that Mr Nabawi would not have had at his disposable but for the tax evasion.
[78] However, for the present: (a) the gross disparity between the income Mr Nabawi and Premium Plasterboard have declared and the undeclared funds in their bank accounts; and (b) the implausible explanations given by Mr Nabawi for the funds deposited in those bank accounts, satisfies me that there are reasonable grounds to believe that the Property has either wholly or in part been either acquired or derived from significant criminal activity. This activity took the form of Mr Nabawi making and enacting a deliberate and intentional decision to evade paying tax on a substantial portion of the undeclared funds. Whether this conclusion can be countered by an argument that the tax and associated costs/penalties that the IRD will be able to recover from Mr Nabawi exceed the value of the Property to be restrained, and therefore in reality there are no unlawful profits/tainted property to be either forfeited or restrained, is something I cannot determine. Neither party addressed this issue. Without hearing arguments on it I am not prepared to speculate that the relevant tax liabilities remain live and are recoverable under the TAA.
[79] The evidence presented by the Commissioner also gives me reasonable grounds to believe that Mr Nabawi must have known the income under his control (either personally or in his role as a director of Premium Plasterboard) was subject to tax and that it was his responsibility to ensure it was declared and the correct tax paid.
[80] It follows from the above that the Commissioner has established a proper basis for the restraining and ancillary orders sought.
32 Vincent v Commissioner of Police [2013] NZCA 412 at [45] to [47].
[81] For completeness, I now deal with Mr Nabawi’s objections to the admissibility of evidence in Detective Bree Anderson’s two affidavits. First, it is important to say that the decisions I have reached have not been materially influenced by Detective Anderson’s affidavit evidence. Instead I have relied on the documentary evidence, the affidavit evidence of Ms Thompson, the evidence of Fahim Nabawi and the impression I gained at the hearing of the evidence of Mr Nabawi.
[82] Second, as regards the objections to the affidavit sworn on 11 December 2020, which are based on hearsay, I consider that for the purpose of an interlocutory hearing these objections cannot be maintained. The combination of s 20(1) of the Evidence Act and r 7.30 of the High Court Rules 2016 permits the Court hearing an interlocutory application for restraining orders to receive affidavits containing hearsay matter where the cost, delay and inconvenience involved in obtaining the evidence from a witness with personal knowledge would be disproportionate to the reasonable necessities of the case.33
[83] Third, Detective Anderson also swore an affidavit dated 28 August 2020, which was initially filed in support of the Commissioner’s earlier without notice application for restraining and further orders. Passages in that affidavit refer to Mr Nabawi’s alleged sexual offending, which originally drew him to the attention of police. Mr Nabawi objects to those passages on the grounds of relevance. I accept that the passages are irrelevant to the matters I have to determine. For that reason, I have ignored those passages. There are other passages in this affidavit that provide evidence relating to Plaster Squad Limited and its employees. Mr Nabawi contends these passages are irrelevant. I agree. The focus has been on tax evasion by Mr Nabawi and Premium Plasterboard. The Commissioner did not attempt a propensity analysis to support the admission of evidence on Plaster Squad Limited. Accordingly, I have ignored this evidence.
Interests of Justice
[84] I reject Mr Nabawi’s submission that making restraining orders would be contrary to the interests of justice. I have found there are reasonable grounds to believe
33 See Vincent v Commissioner of Police [2013] NZCA 412 at [47].
the evidential basis on which the Commissioner relies. Against that background I consider the interests of justice warrant making the restraining orders. Without such orders in place there would be nothing to stop Mr Nabawi from dissipating or otherwise disposing of the Property. Were that to happen the application for forfeiture orders would become academic.
Result
[85] I make orders under the Criminal Proceeds (Recovery) Act 2009 restraining the property set out below, and direct that it is not to be disposed of, or dealt with by any person other than as provided for in this order, and is to be under the Official Assignee’s custody and control:
(a)Restraining orders pursuant to ss 24 and 25 of the Criminal Proceeds (Recovery) Act on the 2017 Toyota Hilux van, registration [redacted].
(b)Restraining orders pursuant to s 25 of the Criminal Proceeds (Recovery) Act on $58,450 cash located in the Toyota Hilux van during the execution of a search warrant on 29 November 2019; and the credit balance of ANZ Bank Ltd account [redacted] held in Mr Nabawi’s name.
[86] Pursuant to ss 33, 34 & 35 of the Criminal Proceeds (Recovery) Act I make ancillary orders directing the Official Assignee to sell the above Hilux and to retain the proceeds, after paying all associated costs, in accordance with the restraining orders.
[87] Because it is not clear to me whether orders are still sought by the Commissioner in relation to the 2006 Land Rover Discovery registration [redacted], registered to Mr Nabawi and referred to in the Commissioner’s application, leave is reserved to the Commissioner to return to Court on that matter.
[88]The parties have leave to file memoranda on costs.
Duffy J
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