The facts
14For sentencing purposes it is necessary to state the relevant facts. It is my task to find the facts, not inconsistently with the jury verdicts. Where the facts are adverse to the offenders, I may not take them into account unless satisfied beyond reasonable doubt of their existence. The following are the facts I find proved, where necessary beyond reasonable doubt.
Background
15The conspiracy the subject of each count originated in an accountancy firm in Vanuatu. Initially the firm went by the name Moore Stephens Vanuatu; at some point it became PKF Vanuatu. Both Moore Stephens and PKF Vanuatu were part of a very much larger international organisation under the same names. During the period of the conspiracy Mr Agius was the senior partner of the firm and resident in Vanuatu. The conspiracy centred around a series, or pattern, of arrangements that concerned the preparation and lodgement of income tax returns on behalf of Australian companies conducting businesses of various kinds. A large number of Australian companies were invited to, and did, participate. The directors of eight of those companies gave evidence in the trial. These companies became involved via their association, professionally (as clients), with a NSW firm of accountants practising under the name of Owen T Daniel and Company, of which the now deceased Mr Owen Trevor Daniel was the principal and in which Mr Zerafa was initially an employee, and, from 2000, a partner. I will say more of Mr Daniel and his firm in due course.
16Throughout the trial, the arrangements were referred to as a "scheme". The scheme was colourfully referred to by one company director participant as "the round the world trading scheme"; the aptness of that label will become apparent. It is convenient to continue to use the term "scheme".
17That the scheme was fraudulent cannot, having regard to the jury verdicts, now be questioned. In any event, I am independently amply satisfied that it was. In order to disclose the extent of the conspiracy, it is necessary to set out, in some detail, how the scheme was initially designed to operate, and how, in practice, it did operate. What actually happened varied markedly from company to company, and on occasions departed substantially from what can be discerned to have been the original conception.
18At the heart of the scheme were fraudulent claims by Australian companies for income tax deductions said to be for business expenses. As designed, the scheme involved provision to the Australian company participants of invoices for specified services - usually identified as "management and consultancy services". The wording on the invoices was selected, sometimes in conjunction with the company directors, to appear to be relevant to the nature of the business conducted by the relevant company. For example, in respect of one company (Tara Pty Ltd) the business of which was information technology, the invoices provided (sometimes long after the claims for deductions had been made) identified investigation and report of network management requirements, preliminary investigation of Y2K liabilities, and review and analysis of a proposed "IP addressing scheme" as the services provided. These services never were provided by the invoicing companies. It was never intended that such services be provided. The invoices were prepared on the letterheads of UK registered companies. One invoicing company that featured prominently in the evidence in the trial was Billbury Ltd, but there were a number of others.
19Notwithstanding that no such services were provided, the Australian companies made payments of the amounts on the invoices. Payments were made to New Zealand bank accounts in the names of the UK invoicing companies. The Australian companies entered the payments into their profit and loss (income and expenditure) statements. The total of the expenses for the year, including the false entries, were then translated into the business expenses in the companies' income tax returns, and (in accordance with the self assessment system operated by the Australian Taxation Office ("the ATO")) resulted in reduction in the taxation for which the companies were assessed to be liable. The false claims for business expense deductions constituted the fraud the subject of the conspiracy in the first count, and the loss to the Commonwealth the subject of the conspiracy in the second count.
20The money paid to the New Zealand accounts was, within a short period, transferred to other accounts, also held in New Zealand banks, in the names of finance companies based in Ireland. One such company was Edgecumbe Ltd. The money was then, again within a short time, returned to Australia, usually to the personal accounts of the directors of the Australian companies. It was returned under the guise of loans, in circumstances to which I will come. The purpose of returning the money in this way was to avoid it appearing in the records of the directors as income, with potential income tax liability. The payment of money which was, in reality, the money of the companies, to the companies' directors, without its being declared for income tax purposes, was a secondary fraud, or loss to the Commonwealth. In some cases, the company directors transferred the money back to the company's accounts, recording the transfers as directors' loans. In respect of one company (Australian Safety Specialists Pty Ltd ("ASS")) there were at least two occasions on which the returned money was paid into the company account. This appears to have been a clerical or other error and was readily rectified. In respect of another participating company (Gladesville Bridge Marina ("GBM")) the loan documentation was made out in the name of the company, and the returned money was paid into the company account. This ultimately created very severe difficulties with the company accounts recording a ballooning loan.
21The scheme was, therefore, relatively simple; it could even be called crude. It involved the payment of money by Australian companies in response to false invoices for services not received by the Australian companies, and fraudulent claims of those amounts as deductible business expenses, and the return to the directors personally of the money, masquerading as loans in order to avoid personal income tax.
22Integral to the scheme was the maintenance of company accounting records that included the false transactions, and the preparation of income tax returns based on those false accounts. This was done by the company directors, with the assistance of Owen T Daniel and Company accountants.
23A notable feature of the scheme, as it was conceived, was an elaborate trail of documentation. In theory, that trail began with the invoices for services. It also included letters from the Irish finance companies purportedly responding positively to requests (which had never been made) for loan finance in specified sums, purported loan documents ("AUD dollar facility" - sic) and further invoices, this time from the finance companies, purportedly representing interest charges on the draw down of the loans.
24This documentation was clearly designed to give an appearance of authenticity to the transactions in case of inquiry or investigation by the ATO. Indeed, there was evidence, which I accept, from one company director (Mr Philip Waller of ASS), that Mr Agius, in explaining the scheme, said, in response to a query, that there would be ample documentation to satisfy any such inquiries.
25A variation of the scheme emerged in 2003. This involved the provision, to Australian companies, of documents entitled "certificate of insurance". These were alternatives to the invoices for management and consultancy services. In other respects, this variation followed a similar pattern to that I have already described. The certificates of insurance, which were, of course, false, purported to specify the nature of the insurance, the amount of cover, and the period of cover, together with the premium. The Australian companies paid the amounts specified as the premiums in the certificates to New Zealand accounts, most of the money was transferred to other New Zealand accounts, from which it was returned, again masquerading as loans, to the Australian company directors. The certificates of insurance were created to provide apparent authentication of the insurance payments in the event of inquiry by the ATO.
26Implementation of the scheme was, in fact, haphazard and inept. In many cases, invoices for services were not provided to the Australian companies. In others, they were not provided until after the Australian company directors had pressed for their provision, for the purpose of completing the company accounting records. Frequently, the amounts on the invoices did not correspond with the payments that were made. In some cases, the Australian companies made entries (false) in their accounts, purportedly representing payments to the UK companies for relevant services, but did not, in fact, send money to New Zealand. These were simply false claims for deductible expenses: they were not claims made in accordance with the design of the scheme, but they were a consequence of it and flowed directly from participation by those company directors.
27The evidence also shows that the scheme involved the incorporation, in Vanuatu, of a company associated with each participating Australian company. The purpose of these Vanuatu companies did not emerge from the evidence, and remains a mystery. Certainly, no money under the scheme was paid to the Vanuatu companies.
28In each case, the Australian company directors were told that participation in the scheme required payment of a fee as "start-up costs". This varied from $8000 to $12,000 over the period of the conspiracy and was deducted from the first payment.
29Perhaps the most elaborate part of the scheme was the documentation designed to provide evidence that the money returned to the company directors constituted loans. Commonly, if not invariably, an Australian company director received, unsolicited, a letter from a finance company in Ireland, stating that a request made by the director[s] for loan finance had been approved. (No such request had, in fact, been made.) With this letter was a document entitled "AUD dollar facility". These documents, on superficial assessment, had the appearance of genuine commercial transactions. They stated that finance was sought and offered "for the purpose of debt restructuring". Usually, the stated amount of the loan was $1 million. These documents, also, were created for the purpose of satisfying any ATO inquiry. That the purported loans were shams was evident, on closer examination, by two circumstances. First, notwithstanding the quantum of the loans, no security was sought. Second, the loan offers were accompanied by undated letters containing two palpably false statements - that the loans had been (fully) drawn down, and that the loans had been fully repaid. (These letters came to be known (inappropriately) as "letters of forgiveness" or "letters of comfort".)
30Money was sent from the finance companies to the Australian company directors. The amounts sent corresponded with the amounts purportedly paid in respect of the false "management and consultancy" fees claimed in the invoices, subject to deductions for administration expenses, and a single deduction, from the first payment, for "start-up costs". This was the last step in the "round the world trading scheme".
31Each of the statements in the "letters of comfort" was, as I have said, palpably false. There had been no draw down. The money that had, purportedly under the loans, been paid to the Australian company directors, was in fact money the property of the Australian companies, and was not loan finance; and the company directors had not repaid any loan to the finance company.
32Notwithstanding the statements that the loans had been repaid, the Irish finance companies continued to send invoices, purportedly for interest on the sums said to have been drawn down. The evidence is unclear about the ultimate disposition of money paid by the Australian companies (or their directors) in response to these invoices. One director (of ASS) said that they represented "a second bite of the cherry", and that that money, too, was returned under the guise of loans. The same director, however, also said that he was advised (by one of the co-accused who was not convicted) simply to pay the amount on the invoices, since the advantage the company was receiving was so substantial.
33In these cases, the communications were substantially with Moore Stephens or PKF, either through Mr Daniel, Mr Zerafa, or through other employees of Owen T Daniel and Company, or directly by the company directors. Communications were sometimes directly with Mr Agius, sometimes with employees of Moore Stephens/PKF.
The insurance certificates
34Three of the companies the subject of evidence in the trial participated in the insurance arm of the scheme. In one case (ASS) this was said to be because the amounts of money it had put through the scheme had exceeded $3 million, and the view appears to have been taken that this exhausted the capacity of the loan facility. (That is a little difficult to understand, but that is what the evidence was.) The directors of ASS were therefore advised (by Mr Agius) to continue to participate by making payments to an insurance company, purportedly for "Key Man Insurance". In 2003 ASS paid $94,000 to this insurance company. The following year it paid $452,000. In each case, the bulk of the money was returned, again under the guise of a loan.
35Another company, Bemawell Pty Ltd, joined the scheme in 2003. Its payments, other than interest, were all made to the insurance company. Of five certificates of insurance that found their way into evidence, two purported to cover a single 12 month period. In the first, the amount of cover was said to be $500,000, the premium $50,000. The certificate was sent by covering letter dated just one month before the expiration of the 12 month period. In the second, the amount of cover was said to be $1 million, the premium $100,000. The certificate itself was dated just 28 days before the expiration of the stated period of cover. It was sent together with a letter from Mr Agius advising the director that funds should be in his account by close of business - ie that the premium would be returned to him.
36The remaining three certificates were for consecutive six month periods. In each case, the amount of cover offered was $500,000, the premium $75,000. One certificate was sent three weeks before the expiration of the period of cover, one mid way through that period, and one a month after the expiration of the period of cover.
37That the insurance variant was fraudulent was evident from the size of the premiums, the timing of the covering letters, the dates on the certificates, and the return of the bulk of the amounts paid as "premiums".
38At least two things seem to differentiate the "insurance variation" from the "management and consultancy" scheme. The first is that the communications were directly with Mr Agius. Neither Moore Stephens nor PKF appears to have had any, or any substantial, involvement. The other is that the scheme envisaged that, of the money sent to New Zealand, 10 percent would be retained in a "retention fund". This may have been merely for the purpose of securing a fund from which to pay any insurance claim that was made. At least two witnesses said that they understood that any claim would be limited to the amount held in the retention fund. That was 10 percent of the amount specified on the certificate as the premium. It is also a reasonable inference that the retention fund was intended to provide an appearance of authenticity. A further inference is that the retention money was held in some form of account that accumulated interest, payable to the insurance company or, eventually, its shareholder(s). (Evidence adduced on behalf of Mr Agius established that he had, in fact, purchased two Vanuatu registered and licensed insurance companies, Lime Street Insurance Ltd, and Security Life Nominees Ltd.)
39In respect of most participating companies, the amounts of money sent to New Zealand and claimed as deductible expenses were very significant, resulting in substantial revenue loss. For example, over a 6 year period, from 1999 to 2005, ASS sent almost $4 million to New Zealand; the total tax evaded was $1.27 million. In respect of other companies, the tax evaded ranged from just under $100,000 (over 4 years) (Anscott Pty Ltd) to $645,000 (over a 4 year period) (Hunter Civil and Hire Pty Ltd and associated companies).
40The nature and circumstances of the offending include the period over which it was perpetrated. That was, in the case of Mr Agius, a period of almost 10 years; in the case of Mr Zerafa, a period of more than 7 years, from the middle of 1999. It came to an end only on the execution of search warrants by officers of the Australian Federal Police ("AFP") in October 2006. However, the moral culpability of these two offenders could hardly have been more divergent.
41There is uncontroverted evidence that Mr Agius actively presented and promoted the scheme to clients of Owen T Daniel and Company. He did this through his association with Mr Daniel. He was in the practice of making regular visits to Australia, and of making contact with Mr Daniel, who identified and selected clients he considered suitable for participation; and he arranged for some of those clients to meet Mr Agius. On a number of occasions, at these meetings, Mr Agius outlined the processes involved in the scheme to them. It was his practice on these occasions to draw a diagram illustrating the path the money would take. A number of those diagrams, and some reproductions drawn from memory, were in evidence in the trial.
42Although it was common for Mr Daniel to tell potential recruits to the scheme that the arrangements were legal and above board and had been scrutinised by the ATO auditors and had survived that scrutiny, there was no evidence that Mr Agius himself gave that advice. Notwithstanding the assurances given by Mr Daniel, in general the participants were in no doubt that the arrangements they were embarking upon were fraudulent in that they centred upon false claims for deductible expenses. As a consequence, the directors of all but one of the eight companies identified in the trial entered pleas of guilty to various charges of dishonesty. No fewer than six of them have served terms of imprisonment. Others have suffered non-custodial penalties. The directors of GBM were granted immunity from prosecution.
43I am satisfied beyond reasonable doubt that the implementation of the arrangements was at all times under the direct control and supervision of Mr Agius. He did this with the administrative support of employees of Moore Stephens/PKF in Vanuatu, and also with the administrative support of employees of Owen T Daniel and Company, including Mr Zerafa, and other accountants and employees of the practice. At times, the Australian participants communicated directly with Mr Agius; at other times, they communicated through Owen T Daniel staff, or Moore Stephens/PKF staff.
44As I have mentioned, virtually all communications concerning the insurance certificates were with Mr Agius directly. He signed the certificates, and he signed the covering letters by which they were sent.
45He was a signatory on the bank accounts of all companies that had a role, from the organisational end, in receiving payments from the Australian companies and in transferring the funds from company to company, and in the return of money to the Australian directors. I accept, as was put on his behalf, that the evidence does not go so far as to establish to the requisite degree that he had control of those accounts. That is because, in respect of each account, at least two signatories were required.
46I am satisfied beyond reasonable doubt that Mr Agius received financial benefit from his involvement. The evidence in this respect is limited. Mr Agius was a director of International Finance Trust Company ("IFT Co"), which rendered annual accounts to participating companies, for administration. In each case, on the initial payment, a deduction was made for "set up costs". I accept that some portion of this amount was probably expended on the incorporation of the Vanuatu company. It was never contended on behalf of Mr Agius that he did not receive at least some of this amount. It is true that, so far as the evidence goes, the returns to Mr Agius were relatively modest, particularly in view of the very substantial amounts of tax evaded by the participating companies, and the high level of risk involved (which is, perhaps, more apparent to him now than it was).
47Mr Zerafa's involvement began at an early stage. The evidence shows that he frequently communicated with client participants, and with Moore Stephens/PKF, in the administration of scheme transactions. In the case of Tara, he was instrumental in making the initial arrangements to set up the structures. The facsimile by which he did this establishes beyond reasonable doubt that he had, by then, a working knowledge of the arrangements. That facsimile was dated 9 July 1999.
48I am satisfied beyond reasonable doubt that Mr Zerafa was also very involved, with a number of the companies, in the maintenance of the companies' accounts, and the preparation of the fraudulent income tax returns, and that he was well aware of the false records in the accounts, and the fraudulent claims in the income tax returns.
49On occasions, Mr Zerafa determined, or advised, the amount of money that should be sent overseas. On at least two occasions, he personally forwarded the "letters of comfort" to the directors, with the advice that they keep the letters in safe places.
50I am, however, satisfied in Mr Zerafa's favour that, initially, he acted solely on the instructions of Mr Daniel. I am satisfied (as is inherent in the jury verdicts) that he was, during the period 1997 to 2001 (count 1) aware of the fraudulent nature of the arrangements. I accept that it is possible, even likely, that his full appreciation of that fraudulent nature grew upon him gradually. I am quite satisfied that, by 2001, he had a fair working understanding of the nature of the arrangements, such that he could, and did, advise clients independently, without recourse to Mr Daniel.
51By 2001, Mr Zerafa had become a partner in the firm. He was trusted by Mr Daniel, who presented him to clients as "my right hand man".
52That Mr Zerafa did become aware of the fraudulent nature of the arrangements by 2004 is beyond doubt. He himself gave evidence that, on reading material disseminated by the ATO concerning overseas tax minimisation schemes, he approached Mr Daniel to express his concerns and urged that no new clients be initiated into the scheme. He was abruptly and discourteously rebuffed. However, it does seem that from that date no further clients joined the scheme.
53There is another aspect of the roles played by the two offenders in the conspiracy. In about 2003, the ATO began making inquiries into overseas transactions. In the cases of ASS and Tara, these inquiries resulted in audits of their taxation affairs. I am satisfied beyond reasonable doubt that Mr Zerafa took an active role in organising fabricated responses to the audit of Tara. In the case of that company (the information technology company to which I referred earlier) two meetings took place with officers of the ATO. Immediately before the first, Mr Daniel offered Tara's director, Ms Collette McKenna, a false story she could tell the ATO officers concerning her entry into the arrangements. I am satisfied that Mr Zerafa had no part in this fabrication, but I am also satisfied that he was aware of it. He attended the meeting, aware that Ms McKenna had been advised by Mr Daniel to give untruthful replies to questions asked of her. After that meeting, I am satisfied beyond reasonable doubt, Mr Zerafa requested Ms McKenna to compile a document that had the appearance of a consultancy report emanating from the invoicing company, and that corresponded with what appeared in the invoices - in other words, Mr Zerafa asked her to create false material in the hope that it would satisfy, and for the purpose of satisfying, the inquiries of the ATO that the invoices were genuinely for "consultancy" services provided. Since Mr Zerafa denied having made this request to Ms McKenna, there is no evidentiary basis on which to make any findings concerning any role that Mr Daniel may have had in this. I am unable to say whether Mr Zerafa did this on his own initiative, or at the instigation of Mr Daniel. Either is possible. I accept as a reasonable possibility that the original suggestion may well have come from Mr Daniel. I am satisfied beyond reasonable doubt also that when Ms McKenna produced this document, Mr Zerafa created, or was involved in the creation of, a cover sheet to provide added apparent authenticity. I am satisfied also that he arranged for invoices to be created, although I am not satisfied that he himself created the invoices. I am satisfied beyond reasonable doubt also, that Mr Zerafa provided Ms McKenna with three documents purporting to be "Consulting Agreements" with Billbury, that were also designed to mislead the ATO auditors. I accept the possibility that Mr Daniel provided these to Mr Zerafa.
54In relation to ASS, I am satisfied that Mr Zerafa participated in a "role playing" exercise on the evening before a scheduled meeting with ATO officers in April 2004, at which a false story was concocted to explain the invoices relevant to that company.
55Similarly false answers were provided by Mr Zerafa for the directors of Kylood Pty Ltd and Jiess Pty Ltd (Messrs Hili and Jones) when the ATO signalled its intention of making inquiries, and required answers to pertinent written questions.
56In his favour, I am satisfied that, certainly in the early stages, all of his participation was undertaken at and under the direction of Mr Daniel and not on his own initiative.
57There is no evidence, and it is unlikely, that Mr Agius was more than peripherally involved in these activities about which I have just spoken. He was, nevertheless, involved to a very significant degree in seeking to perpetuate and protect the conspiracy after the ATO's interest became apparent. A number of companies or their directors received "notices of demand" from the Irish finance companies, threatening legal action if the "loans" were not repaid. I accept that Mr Agius told the directors of at least two companies that these could safely be ignored, as they were sent only to provide an appearance of authenticity. I am satisfied beyond reasonable doubt that he was instrumental in devising and preparing the notices. There was email correspondence with some directors (Mr Waller and Mr Hili) after the scheme began to be exposed, in which Mr Agius sought to distance himself from the arrangements.
58I am satisfied also that Mr Agius was significantly involved in returning funds to the directors of GBM. The need for this arose because, for some reason, the loan documentation in respect of that company named the company as the borrower, rather than the directors. This resulted in entries in the company's books that showed a very large loan, which, it was believed, could not be eliminated other than by repayment. Accordingly, the directors of that company caused GBM to make a payment of almost $1 million to New Zealand. This rectified the problem in the company books, but created a new problem in having the money returned. Mr Agius engaged in a number of clandestine ways of returning this money. On one occasion, he made a personal cheque of more than $70,000 in favour of a sister of Mrs Eva Southcombe, one of the directors of GBM. On another, he entered into a spurious arrangement pursuant to which Mrs Southcombe and her husband purchased an expensive motor cruiser, for which he paid half, under the pretence of taking a half share. He and the Southcombes entered into email correspondence designed to give a false appearance of the joint purchase of the boat.
59Finally, on a number of occasions, he participated in returning to the Southcombes very large sums of money in cash and on other occasions arranged for a friend of his to do likewise.
60The above abbreviated account makes it very clear that Mr Agius in particular was heavily involved in both promoting and implementing the scheme arrangements and in attempting to conceal the true nature of the arrangements after the ATO began its inquiries. On his behalf it was submitted that I ought not to find that he was a "promoter". The principal argument put in support of this argument was that it was, in fact, Mr Daniel who was the promoter of the scheme. While I accept that Mr Daniel did actively promote the scheme, that does not exclude another from acting in a similar role. I am satisfied beyond reasonable doubt that an accurate description of Mr Agius' role is that of "promoter". I am, as I have mentioned, also satisfied that he undertook an active role in the day to day implementation of the scheme. Some weight was, on Mr Agius' behalf, attributed to the fact, which is not disputed, that Mr Agius played no part in the preparation of any of the income tax returns. I accept that to be a fact, but its relevance is non-existent. What Mr Agius did was to propose the fraudulent conduct to a number of company directors and provide them with the means of committing the frauds, safe (as they were led to believe) in the knowledge that the documentation would deflect any inquiry by the ATO.
61While, as I have mentioned, I am satisfied that Mr Zerafa also was actively involved, and became more so as time went on, and that he was well aware that he was involved in a fraudulent activity, I am also satisfied that he was led into this by an unscrupulous, immoral and overpowering employer, Mr Daniel. I will say more in due course about Mr Zerafa's personal circumstances.
62For the purposes of s 16A(2)(c), what I have said above is sufficient to show that both offenders engaged in a course of criminal conduct that constituted the offences. Company participants in the scheme filed false income tax returns year after year with the connivance of both offenders. This went on repeatedly over an almost 10 year period, in the case of Mr Agius, a 7 year period in the case of Mr Zerafa.
63It is hardly necessary to say that offences such as these call for sentences containing a strong element of general deterrence. The need for individual deterrence (s 16A(2)(j)) of the offenders is less obvious. I believe that it is unlikely that Mr Zerafa will require any further reminder of the need to avoid using his profession for fraudulent purposes. Indeed, on his behalf it was put that it is likely that he will lose his professional status as an accountant, and will not have the opportunity to use his profession for that purpose. I am less satisfied, in respect of Mr Agius, that the enormity of his criminality has been brought home to him; however, having regard to his age, his criminality, and the consequent need for a significant punitive element in the sentences, and what I would expect would be his capacity to practise accountancy in the future, he may well have little further opportunity for engaging in this kind of criminal conduct. What I have said really deals with the considerations raised by s 16A(2)(n). For the purposes of s 16A(2)(e), the immediate injury suffered by the Commonwealth was a very considerable loss of revenue. In respect of the eight companies of which evidence was given, the financial loss was said to be in excess of $5 million. But there is also an intangible loss. The Australian taxation system, based as it is on self-assessment, depends for its integrity upon the honesty of citizens. Of course, there will always be those who choose to cheat. They are cheating their fellow citizens, casting a greater burden on each of them. Further, when it is known that the system can be, and is, cheated, the very structures of society are damaged. The self-assessment system depends not only on the honesty of taxpayers, but on the confidence of taxpayers that others will make their proper contributions, or that, if they do not, they will be adequately punished.
64In my opinion, the two most important sentencing considerations, having regard to the role played by each offender, and the nature and circumstances of the offending, are general deterrence and the need to impose adequate punishment.