(d) The offender lied to other employees of the FAI Group of Companies about the reasons for the false entries.
19 As to the first matter, the Crown submitted that the offender played a central role in effecting the fraudulent alterations. As Financial Controller of the CPID, the offender was responsible for consolidating and posting CPID's underwriting results into the general ledger. In that capacity, he had the authority to request late entries to be made to the general ledger. The fact that he sent the request for alterations knowing that the request had no proper basis, and then gave a false explanation about it, leads to the conclusion that he played a role in planning, and a significant role in implementing the alterations.
20 In relation to the second and third matters, the Crown concedes that the offender was not responsible for FAI's accounts or the announcement being made to the Australian Stock Exchange concerning FAI's profit. But, the Crown submits, the only reasonable inference is that at the time the offender engaged in the conduct, he must be taken to have known that it would affect the accuracy of FAI's announcement to the Stock Exchange. He must be taken to have known that the purpose of the adjustments was to improve the results that FAI was to announce to the market at year-end. The matters supporting this submission, according to the Crown submission, are the offender's formal qualifications, his professional experience, his executive position as CPID's Financial Controller; and that he had been specifically informed that FAIG's accounts would be incorporated into FAI's Group accounts for the half-year ending 31 December 1997 and be released to the Stock Exchange. This last matter, the Crown argued, appears clearly from the timetable for the consolidation of accounts and the finalisation of the ASX announcement which are contained in a memorandum sent to a number of people within the organisation, including to the offender himself.
21 Although the Crown submitted that a sentence of fulltime custody was the most appropriate sentence in all the circumstances, the Crown submitted that any sentence less than actual custody of one kind or another would be entirely inappropriate. The Crown's general stance had, as its pillar of support, the contention that general deterrence was the most significant consideration in the exercise of the present sentencing discretion. The Crown argued that, anything less than either fulltime imprisonment, or at the very least, periodic detention, would send entirely the wrong message to the business community.
22 In this regard, the Crown stressed the important role that general deterrence must play in sentences for white collar crime, particularly those involving breach of trust (R v Glenister (1980) 2 NSWLR 597; R v Pantano (1990) 49 A Crim R 328; R v Halabi (unreported NSWCCA 17 February 1992); R v Corner (unreported NSWCCA 19 December 1997) and R v Rivkin [2004] NSWCCA 7 at [423]).
23 On the offender's behalf, Ms Fullerton SC submitted that the outcome of this sentencing exercise was, in some respects, a difficult one and was finely poised. In that respect, the Crown generally agreed.
24 Ms Fullerton's primary submission was that the Court should consider imposing a suspended sentence in the present matter. In other words, Ms Fullerton acknowledged that the Court might properly come to a conclusion that, having considered all other available sentences, no sentence other than imprisonment was appropriate in the circumstances (s 17A of the Crimes Act (Commonwealth) 1914). On the other hand, Ms Fullerton argued that of the three types of imprisonment available, namely fulltime custodial sentence, periodic detention or suspended sentence, the third option would be the most appropriate. (I should add that I have used the expression "suspended sentence", as did the parties as a term of convenience. Strictly speaking, the correct order falls within the rubric of a recognizance release order (s 20(1)(b)).
25 The three matters relied upon by Ms Fullerton as warranting such an approach were these: first, the fact that the offending occurred in January 1998 but was first charged in November 2005. In this regard, Ms Fullerton was careful to submit that the penalty in this case should not, in the strict sense, be mitigated by delay. Ms Fullerton did not suggest that there had been an unacceptable delay on the part of the prosecuting authorities. With that qualification I entirely agree. The point made by senior counsel, however, was that, throughout this long period of many years, the offender had entirely rehabilitated himself to such an extent that it could legitimately be said that there was no possibility of any further offending.
26 The second point made by Ms Fullerton was that there were, in fact, no features of aggravation such as to place this offender in a serious category and to place his offending in a serious class of offending. Ms Fullerton took issue with the Crown's four separate features of aggravation and argued that they were not of such quality as to aggravate the outcome as the Crown had argued.
27 I accept that Ms Fullerton's first point has some substance in it. The offender was 33 at the time of the commission of the offence. He had an unblemished record prior to that time. He is now 42, as he comes before the Court for sentence, and there is no suggestion that he has been guilty of any criminal conduct since early 1998. The delay in prosecuting arose because of the complexity of the HIH Royal Commission and because of the natural and entirely reasonable delay that followed upon the publication of the Commissioner's report. The ASIC investigators had many avenues to follow and there can be no criticism of the fact that a number of years passed before the decision to prosecute was made in the present matter. As I have made clear, Ms Fullerton has not advanced any submission critical of the investigating process or the prosecution. Rather, she points to the fact that the passage of many years has resulted in a situation where the offender's position has changed significantly so as to demonstrate, beyond doubt, his complete rehabilitation.
28 In relation to Ms Fullerton's second point, it will be necessary to examine each of the four allegedly aggravating features.
29 As to the first feature, Ms Fullerton argued that the position occupied by the offender was somewhat more limited than the Crown had submitted. For example, it was pointed out that the offender was the Financial Controller of only one of the two divisions within FAIG, namely the Corporate Professional and Insurance Division. He played no role at all in respect of the General Insurance Division. He was not even a manager of his division, nor did he exercise any executive responsibilities. He had no responsibility or authority in dealing with the external accountants or auditors.
30 In particular, Ms Fullerton argued that the offender was not the architect of the decision to manipulate the underwriting loss. There was no evidence, for example, that he was consulted about that matter or expressed any views about it himself or contributed to any decision that the alteration be made. Rather there is, by inference, evidence to suggest that he may have been prompted or directed to take the steps he did. Senior counsel pointed to the facts in paras 18 and 19. These relate to three or four earlier occasions where the offender had instructed his subordinate to reduce the estimates in the general ledger. Of course, the offender is not charged with any offence in relation to any of these earlier occasions and does not fall to be punished in any respect for them. They do, however, provide some insight into the culture of dishonesty which plainly pervaded the company at the relevant time. As the facts indicate, the instructions to make these changes came after the offender had met with Mr Mainprize and/or Mr Kamha to discuss the draft CPID results. If either of those gentlemen did not like the result, then the offender would be required to make any adjustments improving the result. A further indication of the situation appears in para 30 of the agreed facts where Mr Gross made an assumption that, in relation to the January alterations, the offender had authority from the Messrs Kamha and Mainprize to make the adjustments.
31 The resolution of this difference between the parties carries with it some advantage for each side. On the one hand, Ms Fullerton is plainly correct in indicating that the offender was not the architect of the decision to set in train the alteration of the records. Secondly, it is true that he was prompted, if not directed, by his superiors to take the action he did. Thirdly, his role in the company is correctly stated as being middle management rather than senior executive. On the other hand, as I indicated in an earlier statement in these reasons, it was precisely because of the position that the offender occupied that he was chosen for the task entrusted to him. His criminality lies in the fact that he did not resist the urgings of his superiors but went along with them, no doubt influenced by the general culture of dishonesty within the corporate group. Additionally, he was, at least, the architect of the means by which the alteration to the record was to be effected. It was precisely because of the position he occupied that he was able to set the ball rolling towards the later significant alterations in group accounts and the subsequent notification to the Stock Exchange.
32 This brings me to the second point. Ms Fullerton rightly pointed out that the offender had no role or any interest in the achievement of a particular quantifiable profit over and above the bottom line. Moreover, the offender had no role to play at all in ensuring that, from an accounting perspective, the outcome set in train by his actions would be achieved. Ms Fullerton submitted that there is no evidence that Mr Boulden could have known, as at 23 January, how the alteration to the ledger would ultimately impact upon the performance of other business and operations of other entities in the group.
33 Ms Fullerton argued that the offender did not know and intend that the false profit figure for FAI would be released to the market, that is that the market would receive materially false information about the affairs of the public company. At most, Ms Fullerton argued, the offender may have contemplated that there would be an overall conversion from loss to profit but that was the extent of his state of mind. In my view however, matters two and three do contain matters of aggravation for this offence. I am satisfied beyond reasonable doubt that the offender knew that the alteration he directed would be likely to be reflected in false profit figures released to the market. For example, the memorandum (S01254062 dated 2 December 1997) from Rachael Kenna is in the following terms: -
"It is planned that the half yearly release to the FAI Insurance Group to the Australian Stock Exchange will be finalised by 4 February 1998. The following items will be reported:
1. Consolidated profit and loss result for the six months ending 31 December 1997;
2. The consolidated balance sheet as at 31 December 1997;
3. Consolidated statement of cash flows.
Based on the completion date of 4 February 1998, a timetable has been prepared detailing the tasks required and persons responsible. If you foresee any problems, I would be grateful if you would contact me as soon as possible.
Rachael Kenna".
34 At the foot of this memo there is note initialled by Mr Kamha and dated 4 December 1997. It is in these terms: -
"Tony Boulden,
Pls discuss".
35 The distribution list for this memo includes the name of "Tony Boulden". The timetable annexed to the memo indicates that the offender's specific task was to provide draft CPID results to head office by 12 January 1998. Further details in the timetable, which would have been seen by the offender, make it clear that these matters would flow through to the ultimate preparation of consolidated results and consolidated balance sheet. They would flow through as well to the finalisation of corporate accounts and the preparation and delivery of a Stock Exchange release.
36 In my view, there can be no doubt whatsoever that the offender would have known that, by making a reduction of $5.5 million, there would be a direct effect flowing through the accounts to the Stock Exchange release. The offender plainly would have expected, or at least contemplated, that the alteration that he was making would directly lead to a false reduction of the underwriting loss for the half-yearly period. In turn, he would have contemplated and understood that, when consolidated with the accounts of FAI, this would directly lead to a false increase in FAI's profit situation.
37 In relation to the final matter, Ms Fullerton submitted that the lies told by the offender to Mr Gross were part of the fraudulent alteration, that is an element in the offence itself, and should not be assessed as a separately aggravating feature. I agree with that submission. The lie, however, may be taken into account as part and parcel of the assessment of the seriousness of the criminal behaviour involved, although it does not, in my view, separately aggravate the criminality.
38 In all, what is revealed, I think, is an offence that falls comfortably into the mid-level range of seriousness. It is not the most serious offence of this kind but, as Ms Fullerton conceded, it is certainly a serious offence.
39 The third matter relied upon by Ms Fullerton is her argument that the situation in the case of R v Hodgson [2002] SASC 234 should be distinguished from the present matter. The defendant in that case was a senior finance executive of the Harris Scarfe Group. He pleaded guilty to making and procuring false entries in the accounts of the company. The offences were numerous and committed over a period of about three to four years. Hodgson's sentence was reduced by the operation of s 16G of the Crimes Act 1914 and as a result of his assistance to authorities. He received an overall effective sentence of five years and six months with a non-parole period of two years and nine months. Debelle J, with whom Doyle CJ and Williams J agreed, held that the sentence of eight years which the Judge fixed as his starting point was, in all the circumstances, a merciful sentence. Debelle J said at [25}
"Employees of companies holding office at this level of seniority, like directors, have a social and moral obligation, as well as a statutory obligation, to act honestly and responsibly. A great trust is imposed in them by directors, shareholders and creditors alike. Their actions have the capacity to affect many, especially shareholders and creditors. It has the capacity to affect staff who may lose employment because of false accounting. Dishonesty of this kind has the capacity to undermine confidence in published accounts and in the integrity of commercial dealings. Sentences of this kind of offending must, therefore, reflect a significant element of general deterrence."
40 Ms Fullerton argued that these comments must be seen in the context of the facts relevant to the sentencing exercise involved in that case. The points of distinction made by Ms Fullerton in relation to the facts were these: first, Hodgson was primarily responsible for the preparation of the financial accounts for the entire group whereas Mr Boulden was not. Secondly, Hodgson faced 32 counts altogether and the offending conduct was over a significant number of years. Moreover, the Court in South Australia did not accept Hodgson's claim that he had been pressured by one of the directors into making the alterations.
41 I agree with Ms Fullerton that there are some marked points of distinction between the facts in the Hodgson matter and those in the present situation. But, as a general statement, Debelle J's remarks have a wide application and extend to the situation in which the offender found himself here. I also agree with Debelle J that sentences for the kind of offending that was involved in Hodgson's case and, for that matter in the present case, must, appropriately, reflect a significant element of general deterrence.