Taxation and the Criminal Law

Transcription

Fundamentals for Accountants & Lawyers
CHAD J. BROWN
Friday, May 10, 2013
Vancouver Young Practitioners Group
Presentation Overview
1. Recent History of CRA’s Criminal Investigation
Program (“CIP”).
2. Offences and Penalties Overview.
3. Typical Offenders.
4. File Chronology.
5. Search Warrants.
6. Key Principles to Remember.
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CRA’s Criminal Investigation Program
•
•
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Federal government mandate to be “tough on
crime” created the Public Prosecution Service of
Canada (“PPSC”) in 2006.
2011 Report critical of CRA/PPSC performance:
- Too focused on small cases
- 25% of cases rejected due to poor
investigations
- Fines go unpaid
- Only 16% of offenders incarcerated
versus 81% in the USA
1200 convictions and 5000 audits in four years
generated $428 million dollars.
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CRA’s Criminal Investigation Program
•
•
Tax evasion cases have an abnormally high
conviction rate.
98% of tax evasion charges prosecuted by the
CRA in 2006-2007 resulted in convictions.
•
The CRA’s conviction rate has never fallen below
94% in the past five years.
•
Impaired driving (79%), assaults/violence (52%)
and property cases (65%).
-Canada Revenue Agency’s Annual Report to Parliament 2006/2007
-Alberta Summit on Justice 1999.
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Common Offences
•
239(1) of the Income Tax Act (“ITA”) or subsection
327(1) of the Excise Tax Act (“ETA”):
• Paragraph (a): making false or deceptive
statements in a return.
• Paragraph (d): wilfully, in any manner, evaded
or attempted to evade compliance with this
Act or payment of taxes imposed by this Act.
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Common Offences
Excise Tax
Act
Failure to file a return or failure to comply with an
obligation
238(1)
326(1)
Failure to make books and records available
Court order for compliance
238(2)
238(2)
326(2)
326(2)
False or deceptive statements
Destruction of records
False entries
Omission from records
Wilful evasion
False refund or rebate
Conspiracy
Communicating information
Failure to pay/collect/remit
239(1)(a)
239(1)(b)
239(1)(c)
239(1)(c)
239(1)(d)
239(1.1)
239(1)(e)
239(2.2)
327(1)(a)
327(1)(b)(I)
327(1)(b)(ii)
327(1)(b)(ii)
327(1)(c)
327(1)(d)
327(1)(e)
328
329(1)
General offence
Officers of corporations
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Income Tax
Act
242
329(2)
330
Penalties On Conviction
•
•
Crown proceeds summarily (less serious):
- Fine of 50% to 200% of “tax sought to be
evaded”; OR.
- Fine and Imprisonment for a term not exceeding
2 years.
Crown proceeds by indictment (more serious):
- Fine of 100% to 200% of “tax sought to be
evaded.”
- AND imprisonment for a term not exceeding 5
years.
When does CRA proceed by indictment?
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Other Relevant Provisions
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Limitation Periods: ITA 244(4)/ETA 332(4) provide a
limitation on summary conviction offences of 8 years. No
limitation period applicable to indictable offences.
Minimum Sentences: ITA 243/ETA 331 state that the
Court has no power to impose less than the minimum fine
or imprisonment fixed by the Act.
Vicarous Liability: ITA 242/ETA 330 provide for
vicarious liability of officers, directors, and agents.
Penalties: ITA 239(3)/ETA 327(3) penalties are in
addition to fine, so long as they are assessed BEFORE
the information is laid.
Other Sentencing Options
•
In addition to the fine the PPSC/CRA will often
demand:
•
Probation, or
•
A Conditional Sentence Order.
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Types of Offenders
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OFFENDER “A”
Successful business person with no prior criminal record.
Sophisticated knowledge of business, accounting, and
taxation matters.
Begins to misrepresent facts to accounting advisors or, in
the alternative, takes advantage of advisor’s mistakes or
assumptions.
More deliberate action; electronic zappers, deletion of
accounting entries, suppressing income by keeping funds
in cash or depositing to unknown account, coding
misrepresentations in GL.
Views tax evasion as a victimless crime.
Types of Offenders
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OFFENDER “B”
Successful small business person with no prior criminal record, or unrelated record.
Extremely unsophisticated knowledge of accounting and taxation matters - believe
they are sophisticated based upon success of business.
Relies largely on accounting advisors to catch errors and make adjustments at year
end to correct their mistakes.
Significant errors occur throughout the year – poor records keepers.
Cheapskates – won’t pay for proper bookkeeping and/or accounting services needed
to accurately prepare returns; As such, accounting advisors conduct no due
diligence at all, and rely on info. provided.
Misrepresentation in returns are more a function of perceived sophistication and
unwillingness to pay for competent advice than any deliberate attempt to evade the
payment of taxes.
Clients blame accounting advisors; Accounting advisors blame clients as financial
statements and returns are prepared on a “Notice to Reader/Compilation” basis.
Accounting engagement agreements and management representation letters
become key.
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Chronology of a Tax Prosecution
•
Audit by Verification and Enforcement Division
- Obtains evidence of potential evasion by Taxpayer.
• Actus Reus (the guilty act): the act of committing the
crime.
• Men Rea (the guilty mind): the intention to commit the
offence.
Must be proven “beyond a reasonable doubt.”
-
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Much higher burden than civil tax appeals, in which the
Minister must only meet the civil standard of “balance of
probabilities”.
No “assumptions” in criminal matters. Each element of the
offence must be proven beyond a reasonable doubt.
Note that the Taxpayer has NO charter protection during this
stage.
•
T134 - Referral to Investigations
- Verification and Enforcement Division refers
matter to Special Investigations.
- Taxpayer unaware of referral.
- If not rejected, file is accepted for a
preliminary investigation.
- Upon preliminary review, file may be accepted
for a “full scale investigation”.
- This should happen within 60 days of referral.
- Taxpayer’s charter rights arguably apply upon
the referral to CRA Special Investigations
Unit.
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•
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Obtaining and Securing Evidence
• Search warrant (Section 487.1 Criminal Code
(“CC”), Section 231.3 ITA, Section 290 ETA).
• Production orders (CC 487.012 or 487.013).
• Obtaining evidence seized by other law
enforcement agencies (CC 490.15).
• Informed voluntary consent.
• Surveillance.
•
Judicial Review of Solicitor and Client Privilege
Claims.
- Documents seized at Taxpayer’s home or
business.
- Documents seized at Taxpayer’s accounting
advisors office.
- Documents seized at Taxpayer’s legal
counsel.
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•
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Forensic Audit and Document Examination
- CRA completes forensic audit of Target.
- Where necessary forensic document
examiners will analyze evidence.
Computer Search and Evidence Recovery (CSER)
Officers analyze digital evidence seized.
Interviews of Target and Third Parties
- Administrative Interviews.
- Investigative Interviews.
Preparation of the Prosecution Report.
Reassessment of Target(s), including penalties.
Letter to Justice recommending charges be laid.
Justice reviews the report and exercises
prosecutorial discretion:
- Purpose is to ensure justice is done, not
simply obtain a conviction.
• Reasonable likelihood of conviction?
• Public interest to prosecute the offence?
•
•
•
•
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•
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If the PPSC decides to lay an information, the following then takes place:
1.
Information is laid, and summons is issued and served upon the
accused.
2.
Accused appears and Crown enters election as to whether it will
proceed by (a) summary conviction or (b) indictment.
3.
If indictable:
a)
Accused would plea and elect mode of trial, and
b)
Preliminary inquiry may be set and heard. Subsequent to
inquiry will usually be remanded for trial.
4.
If summary conviction:
a)
Accused enters plea: guilty or not guilty. Scheduled for
Trial.
5.
The Crown will provide “disclosure” to the Defence (R. v.
Stinchcombe). Very large files with electronic disclosure.
6.
Matter will proceed to trial, which will result in:
a)
Acquittal, or
b)
Conviction and Sentencing.
CRA Audits Generally
An authorized person (auditor) may enter any place
where:
– Business is carried on
– Property is kept
– Books and Records are kept
If a business premises is also a “dwelling-house”, the
authorized person requires:
– Consent of the occupant; or,
– obtain a Search Warrant
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Audits vs. Investigations
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•
Once the "criminal investigation" has begun,
auditor cannot rely administrative audit powers (R.
v. Jarvis).
•
Individual Charter protections apply.
• Right to Remain Silent
• Freedom from Self Incrimination
• Right to be Free from Unreasonable Search
and Seizure.
•
Must obtain any information from accused by way
of a search warrant.
What is a Search Warrant?
•
•
A warrant is a judicial pre-authorization for a peace
office or public officer to search a particular place
for evidence relating to a criminal offence.
The warrant will also allow the peace officer to
seize any such evidence that may be found in that
particular place.
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How is a Search Warrant Obtained?
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In the tax context, a warrant may be obtained
under one of three provisions:
- section 487 of the CC;
- section 231.3 of the ITA; or
- Section 290 of the ETA.
It is the CRA’s standard practice to obtain a
warrant under the CC.
How a Search Warrant is Obtained?
•
Under section 487 of the CCC, someone must
swear an “information to obtain” [ITO] setting out
reasonable grounds to believe that there is, in a
particular building or place:
- Anything that, there are reasonable grounds
to believe, will afford evidence that an offence
has been committed.
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Executing a Search Warrant
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•
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Section 487 of the CCC allows for a warrant to
search “any place” set out in the information.
In the tax context, the CRA will likely seek a
warrant for any place where business and tax
records are kept.
- Usually attend the taxpayer’s home,
accountant’s office, and business premises all
on the same day.
- These are highly intrusive.
Executing a Search Warrant
•
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Once the search warrant has been issued by a
judge, the CRA will normally attend at the place(s)
set out in the warrant.
- This will normally occur within a few days of
the warrant being issued.
- The officers from CRA Special Investigations
will usually be accompanied by RCMP
officers/City Police.
The RCMP Are At The Door?
•
If the CRA and RCMP have obtained a warrant to
search your office, there is little you can do to
prevent the search.
- It is a criminal offence to interfere with the
execution of a search warrant
- The only issue which may present itself during
the search is whether documents are subject
to solicitor and client privilege. These
documents should be sealed for review by a
judge.
-
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Keep notes of how search is conducted.
Special Cases – Searches of Law Offices
• Applicable Principles (Lavallee, Rackel & Heintz v. Canada, 2002 SCC 61).
1.
No search warrant can be issued with regards to documents that are known to
be protected by solicitor-client privilege.
2.
It should be established that there is no other reasonable alternative to the
search.
3.
When allowing a law office to be searched, the issuing justice must be rigorously
demanding so as to afford maximum protection of solicitor-client confidentiality
4.
Generally, all documents in possession of a lawyer must be sealed before being
examined or removed from the lawyer's possession.
5.
The lawyer, client, or representative of the local Bar should be allowed to
oversee the sealing and seizure of documents.
6.
CRA must contact all potential privilege holders, who should then be given a
reasonable opportunity to assert a claim of privilege and, if that claim is
contested, to have the issue judicially decided.
7.
The Attorney General may make submissions on the issue of privilege, but
should not be permitted to inspect the documents beforehand. The prosecuting
authority can only inspect the documents if and when it is determined by a judge
that the documents are not privileged.
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Law Office Searches
• Result:
1.
Where sealed documents are found not to be
privileged, they may be used in the normal
course of the investigation.
2.
Where documents are found to be privileged,
they are to be returned immediately to the holder
of the privilege, or to a person designated by the
court.
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Search Warrants
•
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Charter Analysis:
- Section 8 – Right to be free from
unreasonable search and seizure.
- Expectation of Privacy v. Law Enforcement
- Warrants challenged in a voir dire at trial.
- Burden is on the accused, on the balance of
probabilities, to establish that
• The accused had an expectation of
privacy.
• The search was not reasonable.
Search Warrants
•
Does the accused have a reasonable expectation
of privacy?
• How does the breach affect the accused’s
freedom or dignity
• Bodily integrity (blood, breath) - high
• Residence - high
• Business records – low
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Search Warrants
•
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Was the search conducted reasonable?
- Is it authorized by law;
• Section 487 CCC - judicial predetermination
based on reasonable grounds that:
• an offence has been committed, and
• the search will afford evidence of that
offence.
- The law itself is reasonable;
• Can challenge the provision itself.
- The manner in which the search is carried out is
reasonable.
• Manner in which the search was
conducted breached the accused
rights.
If so unreasonable... will evidence be excluded?
R. v. Grant (2009 SCC)
• How serious was the conduct which led to the
discovery of the evidence?
• Would the admission of the evidence bring the
administration of justice into disrepute from the
perspective of society's interest in respect for
Charter rights (i.e. freedom from unreasonable
search and seizure)?
• What is the effect of admitting the evidence on the
public interest in having the case adjudicated on
its merits?
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Search Warrants: What to remember?
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Do not interfere with execution of the warrant. Provide reasonable
access to records/evidence.
Only issue to be addressed is privileged records. Identify those to
searchers, and advise as to potential privilege claim.
Do not agree to be interviewed as part of search, do not allow client to
be interviewed.
Privileged records should be sealed for judicial review.
Remember that special rules pertain to law office searches. Call Law
Society and, if necessary, retain counsel to seal records and address
privilege claims.
- Investigators cannot review records in law office searches.
Consider taking contemporaneous notes of what takes place during
search.
Zealously protect privilege.
Generally: Things To Remember
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Once search warrants are executed or a T134 referral is made, the file becomes a criminal
matter, and advice should be sought.
Know your client’s Charter rights.
Understand distinction between Administrative Interviews and Investigatory Interviews.
• Legal obligation to provide information during audit.
• No obligation to speak to CRA Special Investigators conducting criminal
investigatory interviews.
• You may have a duty to keep client information confidential unless compelled by
law (search warrant or subpoena)? Get instructions from client and your own
legal advice.
Lawyers and accountants should protect clients right to remain silent and only provide
information when (a) compelled by law or (b) after careful consultation with experienced
counsel.
Do NOT try and help your client by continuing to provide information and explanations.
Information should only flow through criminal counsel.
Lawyers and accountants should be ready for the execution of search warrants at any
time. Have office procedures in place.
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Proper Representation
•
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Average criminal lawyer cannot adequately advise
clients on these cases.
• Do not understand basic accounting and
tax principles.
• Cannot do a proper analysis of GL,
accountants working papers, year end
adjustments, tax returns, etc.
• Do not have the resources and expertise
to conduct in-depth critical review of
auditors/investigators’ working papers.
Proper Representation
•
Properly representing tax offenders requires an understanding of:
• Criminal trial procedure and evidence.
• Application of the Charter to tax investigations.
• Understanding of regulatory context of tax audits which
result in criminal investigations.
• Understanding of accounting and taxation issues,
including the ability to review investigator’s audit file with a
critical eye from both a criminal and tax perspective.
Tax
Lawyers
Criminal
Lawyers
Criminal
Tax
Lawyers
41
Thank You!
For tax cases and updates follow me on Twitter and/or add me to your network!
@tax_litigator
42

Taxation and the Criminal Law

Transcription

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