R v KAMHA

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION CRIMINAL LIST

1 HIS HONOUR: Ashraf Kamha, you have pleaded guilty to a charge of being privy to the fraudulent alteration of the books of FAI General Insurance Limited (FAIG) for which the maximum prescribed penalty is imprisonment for two years and/or a fine of $100,000. You have also asked, with the requisite consent of the Prosecutor, that there be taken into account an offence of failing to act honestly in the discharge of your duties, in substance, by permitting the fraudulent alteration to deceive external actuaries. I shall do this. 2 A somewhat unusual situation has arisen in that a submission on behalf of the Crown began and ended with a proposition that, in the circumstances, a sentence of imprisonment but fully suspended would be within the range of the proper exercise of sentencing discretion, and, your counsel effectively joined in support of it. Mr Richter QC who appeared with Ms Hinchey for you candidly stated that the Crown submission was fully accepted as appropriate to this case. I state at the outset that I propose to impose sentence substantially in accordance with the submission. There was some mild debate between counsel on matters which I regard as peripheral and, as leading counsel for the Crown observed, they are not matters which will, in the event, make any difference. 3 The central occurrence giving rise to the charge was the reduction on 2 January 1998 in the claims estimates recorded in the AEGIS database maintained by FAIG in respect of some 81 insurance files in a relevant total of about $24m. Ultimately this reduction flowed into publication by the holding company of a proclaimed trading profit of over $3m for the half year ending 31 December 1997 whereas, without the improper reductions, there should have been revealed a loss of just under $8m. 4 It was not your decision to implement these reductions, indeed it was made during a period of your leave which extended after 2 January 1998. However, you had been telephoned by a superior Wilkie who directed you to ensure that the person responsible for processing reductions did so in time for them to have effect in the half yearly accounts that I have mentioned. As a result you telephoned an employee Shorter and passed on the instruction which you had received to him. In turn, Shorter ensured that the appropriate person entered the reductions into the computer base. There were a couple that, within her authority, she could not make but this detail is now unimportant. 5 I accept that when you conveyed the instructions you were unaware that the ordered reductions were improper. They were improper because they did not emerge from any review or analysis of claims exposure nor, in the instances of inwards reinsurance, from any information received from lead insurers. 6 You returned to work on 5 January 1998. Other employees spoke to you raising queries about movements in claims reserves. One of them, McKay referred to a particular portfolio and you told him that the figures were the result of regular claims reviews and not expected to be permanent. You must have known by then that there had been no regular review leading to the reductions. 7 It is conceded by your plea of guilty that you came to know of the impropriety and became privy to it. You failed to bring it to the attention of authorities, however, I accept that you found yourself in something of a quandary. Previously when you had raised another matter of concern with Adler, who was, if I may put it this way, the holder of the highest rank in the FAI corporate structure, you perceived that as a consequence there was implemented a restructure by one aspect of which you were effectively demoted by being required to report to Wilkie. You considered this a humiliating removal of your former operating independence and discretion and I would assess that perception as reasonable. An attempt, if oblique, to raise with Wilkie the issue which has become the subject of charge was rebuffed by him. 8 Certainly by 21 January when you received an email containing updated estimates by Coopers & Lybrand, the external actuaries, you were aware of the improper nature of the reduction that had been made on 2 January. It is convenient to note at this point, in relation to the scheduled offence, that you were then aware that the fraudulently entered data relied upon by those actuaries was incomplete and inaccurate and that that would impact upon the half year results which would in due course be published. 9 Although the force of your circumstances is recognized, so also should be recognized the seriousness of offences by those like you who are vested with the powers and responsibilities of corporate governance. An expression in the insurance industry refers to "long tail" risks and that same expression could apply to the potential effects of a deception such as was elemental to your offending by observing that damage can flow along an extensive path affecting creditors, shareholders and indirect investors through unit and superannuation funds. 10 I turn to some subjective matters. You have no prior convictions and have previously led an unblemished life. The testimonials bear witness to this which is beyond the simple observation of an absence of prior conviction. I do not dwell upon the matter but I regard it as of considerable significance that at the time of the commission of offence you were not only suffering the pain of your perceived demotion in the company but the grief of the grave and ultimately fatal illness of your wife, during which you needed to cope with caring for your then young two sons. There was some minor contradiction in submissions as to whether your plea of guilty was timely. It suffices to find that on balance I consider that it was but importantly in this case it enhances a real remorse which I am satisfied that you harbour for having offended. The evidence demonstrates, to the extent that it may have been required, that rehabilitation has been achieved and it can be predicted with some confidence that you are unlikely to reoffend. 11 That opinion is confirmed by your agreement to give evidence in the forthcoming trial of Wilkie. I note also the statement by counsel of your intention to assist in civil proceedings brought by a liquidator who is seeking to recover damages from those responsible in order to try to assuage some of the financial losses which have been suffered. Legislation requires me to assess the value of your agreement and I will do so in due course. 12 Some submissions were directed to the outcome of proceedings against one Boulden another former officer of FAIG. These remarks are not an occasion for comparative analysis but in response to the submissions I record that I am satisfied that both objectively and subjectively you are entitled to greater leniency than he received. 13 No detailed submission was made concerning the possible penalty of a fine and I have no evidence of your present financial circumstances. Some statements were made by counsel concerning opportunities which you have lost by reason of inhibitions flowing from your offence. In the circumstances I turn my attention to the primarily available form of penalty. I am satisfied that imprisonment would represent an appropriate penalty in this case. I record that I have considered other available impositions, home or periodic detention and community service. 14 It has frequently been observed that an element of general deterrence is important in marking the consequences of a failure in the duty of executives to act honestly and responsibly, particularly as offences of that nature are often difficult to detect and prosecute. 15 Bearing in mind that a maximum penalty is generally reserved for the worst offence or the worst offender, against a maximum prescribed penalty of imprisonment for two years, I would assess an appropriate penalty reflecting the present offence and taking into account the matter on the schedule at a period of 12 months. In making that assessment I have given particular weight to an element of general deterrence. 16 I have borne in mind, as above indicated, that you were not the instigator of the misconduct. Counsel submitted that your offending emerged out of a failure of will, that is, to bring to the attention of authority that of which you had become aware. I would describe you as having adopted a position of wilful blindness to the fraudulent entries into the data base but that does not differ in substance from the submission which I accept as correct. 17 The expressed assessment has not taken into account the value of your anticipated evidence in the pending trial and represents what I would have assessed but for your agreement to testify. In the light of it I would assess an appropriate term to be 6 months imprisonment. In reaching this conclusion I have not overlooked the terms of the Crown submission that it would be within range to impose a sentence of imprisonment which might not have been fully suspended but for the offer of future assistance. 18 I consider that the overall circumstances, both objective and subjective, are such that an effective order should be made fully suspending that term of imprisonment of 6 months. I am conscious that such a period of imprisonment does not oblige the making of a recognizance release order but in this case I consider it should be made and that it should operate forthwith. 19 You should be aware that any breach of the recognizance to be of good behaviour which I will require you to enter may lead to the requirement that you serve all or part of the sentence which is now to be suspended. You have no doubt also been informed by your legal representatives of the possible consequences of failure to fully cooperate in accordance with your undertaking. 20 Ashraf Kamha, for the offence of being privy to the fraudulent alteration of the books of FAIG, and, taking into account the scheduled offence of failing to act honestly in the discharge of your duties as an officer of that company, you are sentenced to imprisonment for a period of 6 months dating from today. I direct that you be released forthwith upon entering a recognizance to be of good behaviour for a period of 12 months, also dating from today. **********

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