Taxation and the Criminal Law Chad J. Brown

Presentation Overview 1.History of CRA’s Criminal Investigation Program (“CIP”). 2.Offences and Penalties Overview. 3.Typical Offenders. 4.File Chronology.

CRA’s Criminal Investigation Program Federal government mandate to be “tough on crime” created the Public Prosecution Service of Canada (“PPSC”) in Report critical of Canada Revenue Agency (“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.

CRA’s Criminal Investigation Program Tax evasion cases have high conviction rate. 98% of tax evasion charges prosecuted by the CRA in resulted in convictions. The CRA’s conviction rate has never fallen below 94% in the past five years. - Canada Revenue Agency’s Annual Report to Parliament 2006/2007 Impaired driving (79%), assaults/violence (52%) and property cases (65%). - Alberta Summit on Justice 1999.

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. The Kienapple Principle.

Common Offences Income Tax Act 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 available238(2)326(2) Court order for compliance238(2)326(2) False or deceptive statements239(1)(a)327(1)(a) Destruction of records239(1)(b)327(1)(b)(I) False entries239(1)(c)327(1)(b)(ii) Omission from records239(1)(c)327(1)(b)(ii) Wilful evasion239(1)(d)327(1)(c) False refund or rebate239(1.1)327(1)(d) Conspiracy239(1)(e)327(1)(e) Communicating information239(2.2)328 Failure to pay/collect/remit 329(1) General offence 329(2) Officers of corporations242330

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. ITA 243/ETA 331: – Court CANNOT go below the minimum fine/imprisonment.

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.” – 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.

Chronology of a Tax Prosecution 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. – See R. v. Jarvis, [2002] S.C.J. 76 (S.C.C.).

Chronology of a Tax Prosecution Obtaining and Securing Evidence – Search warrant (Section Criminal Code (“CC”), Section ITA, Section 290 ETA). – Production orders (CC or ). – Obtaining evidence seized by other law enforcement agencies (CC ). – Informed voluntary consent. – Surveillance.

Chronology of a Tax Prosecution 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.

Chronology of a Tax Prosecution Forensic Audit and Document Examination – CRA completes forensic audit of Taxpayer. – Where necessary forensic document examiners will analyze evidence. Computer Search and Evidence Recovery (CSER) Officers analyze digital evidence seized. Interviews of Taxpayer and Third Parties

Chronology of a Tax Prosecution Preparation of the Prosecution Report. Reassessment of Taxpayer, including penalties. Letter to Justice recommending charges be laid. Justice reviews the report and exercises prosecutorial discretion.

Chronology of a Tax Prosecution 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.

What is a Search Warrant? Judicial pre-authorization. Obtained under section 487 of the CC. Information to Obtain. – 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.

Executing a Search Warrant 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.

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