R v O'Connor
[2013] NZHC 2393
•13 September 2013
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CRI 2011-085-5660 [2013] NZHC 2393
THE QUEEN
v
PAUL WILLIAM O'CONNOR
Hearing: 13 September 2013
Counsel: D La Hood and M Ferrier for Crown
M T Lennard for Dr O'Connor
Sentence: 13 September 2013
SENTENCE OF SIMON FRANCE J
The offending
[1] Dr O’Connor you appear for sentencing having been convicted before me, sitting alone, of:1
(a) 11 counts of being a party to the failure of your trading entities to file tax returns, such omission being for the purpose of evading the payment of tax;
(b)two counts of being a party to the knowing provision of false information to the Commissioner of Inland Revenue for the purposes
of evading the payment of tax;
1 R v O’Connor, Gilchrist and Anderson [2013] NZHC 1869.
R v O'CONNOR [2013] NZHC 2393 [13 September 2013]
(c) one count of being a party to the evasion of tax by one of your trading entities, Media Search Trust.
[2] The verdict judgment is lengthy. I do not intend to exacerbate that situation today. It is an occasion to focus on the core criminality and that is what I intend to do.
[3] Dr O’Connor, the convictions I entered mean that the sum of $360,000 can be identified as having definitely been evaded. That figure does not, however, capture the entire picture. You have also been convicted of deliberately delaying the filing of tax returns – this offending covers tax returns for the tax years ending March 1997 – March 2005.
[4] Counsel are at odds over whether avoidance transactions occurring during the period of deliberately delayed filing should be taken into account so as to increase the quantum of tax evaded. As regards the ACTONZ losses, I found you to be no different from other investors, so it would be wrong to include it. More generally, the inquiry is too speculative to support increasing the figure. But to a certain extent that misses the point.
[5] Those late filing convictions, as well as the count 8A conviction, place your offending in context. It is here that I reject aspects of the submissions made today on your behalf. The bogus invoice scheme involved in the GlobeNet conviction and the unsustainable valuation of your IP were not isolated events, or examples of you being led astray.
[6] Rather, over a period of eight years you actively sought, by whatever means presented itself, to avoid paying your proper share of the tax burden. The convictions cover eight years, and that is what will be reflected in your starting point. However, the evidence at trial shows you to have been doing this for almost
20 years and it was only a time bar on prosecutions that prevented the verdicts reflecting this. That extended period cannot inform the starting point, but will be reflected in my response to the proposition that you deserve credit for your previous good character and offending free past.
[7] In relation to the GlobeNet offending I have already fixed three years as a starting point when sentencing Mr Anderson. I am not going to explain that a second time. I comment, however, that I do not accept at all Mr Lennard’s submission that you were a naive dupe who paid more than $700,000 for a tax loss of one third that amount. I said in the judgment, and I adhere to it, you are not that stupid. Further benefits were going to come to you. That they did not materialise does not mitigate the offending.
[8] I do also at this point emphasise, as I did with Mr Anderson, that this offending was not some dodgy tax treatment. It was naked fraud, creating invoices for work that was never done. It was absolute dishonesty and no-one should be under any illusions about that.
[9] The issue today is the amount by which I should increase the three year starting point to reflect your other offending – the specific act of dishonestly valuating the IP, and the pattern of filing returns late to avoid investigation in the affairs of your company and yourself, as well as the count 8A conviction.
[10] There is no exact science in this. This extra offending involves a quantifiable loss of around $140,000 and an unquantifiable benefit of deferring investigation whilst assets were dissipated. It involves evidence of a sustained course of evasive activity by a successful businessman who, in my view, had an intense desire to avoid seeing any money go to the tax department. You were willing to cheat to avoid that happening and you did so over a number of years.
[11] In fixing the extra penalty I need to bear in mind that many of the culpability factors displayed by this offending are already incorporated in the three years starting point for GlobeNet. I see it as appropriate to add 18 months for all this other offending, meaning a total of four years, six months as a starting point. That is six months more than Mr Anderson which I think is correct. His offending was ad hoc much less sustained and the second incident involved less avoided tax. It did, however, again involve the fraudulent use of fictitious invoices, something your other offending lacks.
[12] Before moving on to address matters in your favour, I want to comment on one aspect of the judgment which Mr Lennard picked up on in his submissions. I said there was no over-arching plan in the sense that you did not at any point map out a course of conduct you would follow or specific devices you would use. However, the evidence made it plain you had this determined aversion to paying tax and you took any chance to avoid doing so. On at least four occasions – Silent Partner, the 1996 Restraint of Trade, GlobeNet and the IP – you created the opportunity when none otherwise presented itself. I do not accept the more generous interpretations of your actions that are urged on me, which sought to highlight your alleged naivety and the dishonesty of others.
Mitigation
[13] You are 64 years old with no previous convictions. You have been a successful businessman, something that I accept is a product of hard work on your behalf.
[14] You have been in a relationship for more than 40 years and have a teenage daughter who lives at home.
[15] Mr Lennard submits to the Court that relevant matters that should reduce your sentence are your otherwise good character, the fact you made no gain, your remorse, your family circumstances and your reparation. I address each.
[16] Concerning your past offending free life, the evidence in this case established that you first engaged in fraudulent tax activity in 1996 with the Silent Partner invoices. In saying that I give you the benefit of the doubt over the 1991 Restraint of Trade but note that the 1996 Restraint occurred at the same time as the Silent Partner fraud. In my assessment, in one form or another, the conduct continued unabated thereafter until curtailed by IRD investigation. That is a period of 15 years or more during which time, partly by hard work but partly by avoiding your tax obligations you built up a successful business which you then sold for several million dollars. Dishonesty over that period allows little scope for acknowledgement in sentencing on the positive contributions you have otherwise made. I accept you were a good
employer and have contributed well to a specific community group your family is involved with.
[17] As for lack of personal gain, I do not accept the point. You sold the business for $3 million. Your trading entities paid virtually no income tax. Whatever you did with the money is not my concern, but I reject the concept that you did not gain from this offending.
[18] Your remorse is something that is difficult to assess. I have no doubt you are sorry for the consequences you have visited upon your family and that the concern you feel in that regard is genuinely for them rather than yourself. I do not really see, however, that you acknowledge your dishonesty. The submissions today highlight that your acceptance of wrongdoing is on your own terms, based on how you have chosen to characterise your offending.
[19] I have received letters from your family, former employees and others. As you know I was already aware of some issues and I regret the impact today’s events will have. However, no option other than imprisonment is available or realistic for this offending.
[20] Society depends on honesty within the tax system. I mentioned on the sentencing of your co-accused, and do so again today, what an affront it is to those who work just as hard for much less and pay their share. At times your income was large by anyone’s standards and yet you cheated to avoid making your contribution. Deterrence is a necessary driver of sentencing for this type of offending. Whatever the end sentence I would not have seen home detention as a sufficient deterrent for tax offending on this scale, especially when that offending is motivated solely by personal greed.
[21] I come finally to reparation. I am advised you have settled for $2 million all your liabilities with the Department. That sum reflects civil liabilities for transactions not covered by the charges, as well as the two specific sums already discussed. It represents full payment of the evaded sums identified earlier.
[22] I acknowledge the Crown position that this money was owed anyway. Whilst that factor must temper credit I think there are several factors here to acknowledge:
(a) it reflects a genuine desire to bring matters to an end and make amends. There were disputes that could be had, and these are foregone. Particularly based on my considerable exposure to you over this year Dr O’Connor, I think that you settling all issues with the IRD is the best sign of remorse there could be and I consider it right to acknowledge it;
(b)the money was not readily accessible to the Crown. It was in trusts and so again represents a genuine effort to make amends. One should not be churlish in recognising this;
(c) I know the money was owed anyway but the reality is that today by your jail term and by the effect it will have on your family, you are paying a heavy price. I believe credit should be given where credit is due for sorting out that part of it that can be sorted.
[23] In fixing the amount of credit for this I have had regard to the authorities.2
Six months tends to be a common figure and the Crown speaks of a general cap of
10–15 percent. I think it appropriate here to be at the top of that or slightly higher, especially given the money was not necessarily otherwise accessible and, at best, certainty not accessible without considerable difficulty.
[24] I intend to allow a year for all mitigating factors, with reparation being by far the major contributor.
[25] Please stand.
[26] On count 8A in the indictment, being a charge of assisting Media Search
Trust to evade tax, I sentence you to three years, six months’ imprisonment.
2 I had particular regard to Clemm v IRD HC Auckland CRI 2005-404-246, 31 August 2005, Hugh Williams J.
[27] On counts 13 and 14, being the GlobeNet false invoice charges I sentence
you to two years, six months’ imprisonment.
[28] On all 11 counts of filing late tax returns I sentence you to one year imprisonment.
[29] All sentences are to be served at the same time, meaning a total sentence of
three years, six months’ imprisonment.
[30] Please stand down.
Solicitors:
Luke Cunningham & Clere, Wellington
M T Lennard, Barrister, Wellington
Simon France J