R v Zhang

DETAILED FACTS

1. The offender, Chang and Chan were involved in two conspiracies to prepare and lodge fraudulent BAS on behalf of corporate developer entities to defraud millions of dollars from the ATO. This was effected by claiming inflated and false input tax credits (ITCs) and goods and services tax (GST) refunds from the ATO for the entities' alleged costs in constructing property developments.
2. In relation to Count 1, JKC Developments Pty Ltd (later renamed as Protons National Pty Ltd, herein after referred to as "JKC"), this was a corporate developer of a retail project located at 12-26 Regent Street in Chippendale, Sydney. JKC was a wholly owned subsidiary of High Trade Company Pty Ltd and part of a group of entities known as the Hightrade Group. The offender was a director of JKC between 31 July 2002 and 26 August 2003. The offender was the beneficial owner of the shares in the corporate entity that ultimately controlled JKC.
3. In relation to Count 2, HT & LI 4 Pty Ltd (later renamed as Resort Hunter Valley Pty Ltd, herein after referred to as "RHV" and later after that Micland Holding Pty Ltd before the company was placed in external administration and later liquidated) was a corporate builder and developer of a hotel and golf resort in Pokolbin in the Hunter Valley of New South Wales. RHV was also a wholly owned subsidiary of High Trade Company and also part of the Hightrade Group. The offender was a director of RHV between 20 November 2001 and 1 July 2004. The offender owned shares in RHV as well as the other two companies, High Trade Company and ACPD Investment who are shareholders in RHV.
4. The offender, by reason of his shareholding, was in effect the owner of the RHV project. The offender was the person in effective control of the Hightrade Group, the High rade Company and the JKC and RHV Developments. He was at times the director, secretary and/or shareholder of JKC, RHV and other companies in the Hightrade Group, or otherwise arranged for associates or family members to be appointed as directors, secretary or shareholders of them.
5. Chan was the Hightrade Group's internal accountant. Chang was an employee of the Hightrade Group (and later contracted to Hightrade), performing administrative and accounting functions and was also the initial director, secretary and shareholder for four companies registered on 28 January 2005, being Club Housing Pty Ltd, Gift&Toy Suppliers Pty Ltd, Healthclub Package Pty Ltd and Lobbyfit Design&Cons Pty Ltd (together these companies are known as the "Chang companies").
6. Chang remained a sole director, secretary and shareholder of these companies until 9 May 2005, when other people were appointed as directors, including people who were not present in Australia at the time or during the companies' existence. For example, Club Housing's director became Siguang Lu and Lobbyfit's director became Xi Lin Yan, neither of whom were in Australia at that time or during the respective companies' existence.
7. BAS lodged on behalf of JKC and RHV contained overstated expenditure, resulting in both JKC and RHV receiving ITCs in excess of what they were each entitled to receive based on how much the developments had cost to build. This amount was either paid by the ATO to JKC and RHV or was used by JKC and RHV to offset their respective GST liabilities to the ATO.
8. Central to how the co‑conspirators in both of the conspiracies intended to (and did in fact) cause the losses was the true relationship between the various entities and how they each purported to determine their GST liability and ITC entitlements for each GST accounting period. Generally, both conspiracies used a similar modus operandi, as outlined below: 1. JKC and RHV, referred to as tier 1 companies, engaged related builder companies (tier 2 builder companies) to undertake the main construction of their respective property developments. 2. The tier 2 builder companies invoice JKC and RHV for significantly more than the true cost of the work they undertook or sub‑contracted on the developments. The false or inflated invoices were also often for round sums which did not correspond with amounts regularly certified by quantity surveyors, Newton Fisher & Associates ("NFA"), who were engaged by the financiers to provide a report on the progress of each development and estimated costs to complete each development before the financiers would authorise a loan drawdown in favour of the developers. The falsely inflated costs were generally not paid by the developer companies to the builder companies. 3. The tier 2 builder companies in turn received invoices from tier 3 companies, being other "supplier" companies in respect of goods and services claimed to have been provided in respect of the developments, many of which either had shareholders or directors, or both, who were related to the Hightrade Group entities, or were otherwise effectively under the control and direction of the offender. 4. Many of the invoices from the tier 3 companies and the Chang companies, or other companies associated with the Hightrade Group, included non‑existent items, such as goods or services which had been provided by other unrelated, genuine third party contractors, or were not used on the respective development or which were significantly inflated. 5. JKC, RHV and the tier 2 builder companies were registered on an "accrual" accounting basis, whilst many of the tier 3 companies were registered on a "cash" accounting basis. This meant, generally, that: 1. JKC, RHV and the tier 2 companies became entitled to claim ITCs in their BAS based on invoices they received, and became liable to pay GST on the basis of invoices issued, and, 2. whilst tier 3 companies became entitled to claim ITCs on money actually spent, they only became liable to pay GST upon receipt of money from the invoices that had been issued. 1. Therefore, relying on the invoices they received, which were for inflated amounts or for non‑existent goods or services: 1. JKC lodged GST claims with the ATO in respect of the Chippendale development that overstated the actual cost of the development by about $25 to $30 million, causing the ATO to pay about $2.5 to $3 million in GST returns or offset illegitimate ITCs against JKC's GST liability, which is the subject of Count 1. 2. RHV lodged GST claims with the ATO in respect of the Hunter Valley development that overstated the actual cost of the development by over $100 million, causing the ATO to pay at least $10.5 million in GST returns and illegitimate ITCs, which is the subject of Count 2.
9. A more detailed summary of the first, second and third tier entities relating to JKC and RHV was exhibited as Exhibit #S50_2 (Company Summaries) and is annexed to the Crown facts.

PRACTICES COMMON TO BOTH CHARGES

1. Although the conspiracies each concerned separate developments, there was an overlap in the period they were carried out and the conduct involved. Much of the conduct concerning JKC occurred during the RHV conspiracy period. However, the RHV conspiracy continued well after the JKC development had been completed and JKC had been placed in liquidation.
2. The evidence in the trial established: 1. The offender was the controlling mind of the Hightrade Group of companies. He was variously a director, secretary and/or shareholder of a number of the Hightrade Group entities, including JKC and RHV, the tier 2 builder companies Hightrade Constructions Pty Ltd ("HTC") and various tier 3 companies. Although the offender was not always a director or shareholder of these companies, he usually caused an employee, associate or family member to be appointed a director if he himself was not formally appointed. 2. Chang and Chan had also been employees of the Hightrade Group. Chan, whilst not an officeholder in the various Hightrade entities, was an accounting controller of High Trade Company and worked across all entities in the Hightrade Group. Chan was responsible for preparing accounting documents for Hightrade Group entities on the instructions of the offender and Chang. Evidence, including from the offender in the trial, established that each of Chan and Chang were initially employed directly by a Hightrade Group entity, but later provided their services to the Hightrade Group through their respective private companies. 3. The offender knew of the expected and true costs to undertake the developments. Throughout the developments, he knew of, and at times read and issued instructions in relation to the quantity surveyor reports. He sent emails to Chang, Chan and others advising of the construction costs to develop each of the Chippendale and Hunter Valley projects. He signed formal loan documentation, including personal guarantees, based on letters of offer which recorded the estimated costs to construct and complete the respective developments. 4. The offender received regular updates from Chan and Chang and provided them both with instructions concerning the amounts of GST to be claimed by different entities or the amounts to be invoiced between different entities. 5. The offender frequently communicated with Chang and Chan in relation to both the BAS lodged by JKC and RHV as well as other companies within the Hightrade group.
3. Giovanni, also known as John, Di Vito ("Di Vito") was employed by the Hightrade Group as their finance manager from 1999, after having met the offender in his previous role at the ANZ bank. During the early 2000s, Mr Di Vito provided his services to the Hightrade Group through his own company, GDV Consulting. He reported directly to the offender, whom he knew to be the owner of Hightrade, the "owner and operator of the business". He received all his directions from the offender, including construction cost estimates for JKC of $11.5 million.
4. Another former employee, Con Cockinos ("Cockinos"), said that Chang was an assistant to the offender; that Chan was an accountant and accounts manager; that Louis Lu was one of the directors and Mr Di Vito was the finance manager. Mr Cockinos described the offender as "the boss".
5. During the interviews with the ATO in 2006 and 2010, Mr Cockinos described the offender as the CEO, owner and controller of the Hightrade companies who ran the entire operation.
6. Mr Cockinos was appointed director of numerous companies including JKC between 26 August 2003 and 13 April 2006, and RHV between 1 July 2004 and 30 March 2009. During those periods he regarded his role as a "figurehead of a Chinese company" and was employed to sign documents for JKC and RHV but not undertake any other role as a director. He was only ever shown the pages he was requested to sign on the RHV BAS but never shown the working sheets or any other financial information, nor was it explained to him what he was actually signing.
7. In a general sense "the purpose" of the conspiracies was outlined in a document that was located in the electronic material found during the search warrants executed on the offices of Hightrade Group of companies in 2009. In that search was located an excel spreadsheet which had been saved with the heading "Builder's Claim Chart." The first tab or page of that document is headed "Notes" and identifies a number of roles, responsibilities and GST targets.
8. An essential component of the document notes, "Get GST refund from ATO according to the project budget." It further noted that "High Trade Construction acts as a major builder for all developments/projects" and that "Break-even is the principle, GST refundable/payable should be scheduled for different purposes such as stock clearing et cetera." Chan was listed as the person responsible for executing the scheme.
9. A number of the Hightrade Group companies were managed at business premises located at O'Keefes Lane and Derby Place in Kogarah, known as the Hightrade Business Centre, which served as the business address for many of the companies. Other companies were managed by Yan Lan, also known as Maggie Lan, the offender's former wife who operated a book keeping business, Y & L Australia Pty Ltd ("Y&L"). Ms Lan employed assistants who were engaged in providing template invoices to Chan to support entries posted into HTC's MYOB journals for invoices claimed to relate to the Chippendale and Hunter Valley developments. Many, if not most, of the template invoices were entirely false or fabricated to look like genuine invoices. The provision of these invoices allowed the builder companies to claim ITCs for amounts that did not genuinely represent the work or goods that the invoices purported to support. In turn, the provision of these false invoices supported and offset the hugely inflated invoices for building costs that were provided to the development companies, such as JKC and RHV. JKC and RHV then used the inflated builder's invoices to claim ITC and GST refunds that far exceeded the actual cost of the developments. The evidence demonstrated that the majority of the inflated building invoices were never actually paid by JKC or RHV.
10. Records were kept at the Kogarah Business Centre concerning the name and details of the Hightrade Group of companies, including whether those companies accounted for GST on a cash or accrual basis and the reporting cycles for each company. The records were updated periodically and provided to the offender by email from his assistants.
11. For example, on 15 June 2005, Naomi (the offender's then personal assistant) emailed Chan with an excel spreadsheet entitled "List of Company Directors", stating (see Exhibit Misc_024): "Hi Simon, when you have a minute could you please look over my spreadsheet and confirm all of the details correspond with what you have. Then I'll distribute to Li etc..."
12. Chan maintained a monthly spreadsheet of GST payable by and receivable from a number of Hightrade companies managed by the Kogarah office. These were regularly and frequently emailed to Chang, copied to the offender, seeking Chang and/or the offender's input for confirmation. These spreadsheets were updated in a manner consistent with Chang's task list, that is, the invoices or claims from the builder companies to the development companies were posted in the relevant journals of the developer companies by about the 14th of the month following the GST period, and the relevant "small companies" claims or invoices were entered against the builders' GST liabilities by the 21st of the month. It was usually necessary to lodge the developer and builder monthly BAS returns by the 21st of the month following the relevant BAS period, and therefore necessary for the spreadsheet identifying the refundable and payable positions of the various accrual companies to be completed by the 21st of each month from the previous month's data.
13. These spreadsheets were large complex documents. The Hightrade Group were involved in a number of other development projects in addition to JKC and RHV during the relevant period covered by the charges. In some months the spreadsheets were updated on as many as three or more times as various figures, including figures taken from the provision of the false invoices, taken into account to arrive at a final figure for GST for each development.
14. The offender during the trial claimed that the ATO investigators falsely manufactured these spreadsheets. The number, complexity, frequency and style of these spreadsheets did not deter the offender from repeatedly accusing the ATO investigators of making up these spreadsheets to inculpate him in these offences.
15. The final figure outlined in the spreadsheets is the amount that each development had to pay or receive in GST/ITCs corresponded with the GST returns that were actually filed by these companies with the ATO during the periods alleged in the charges. That is well before any investigation was even commenced by the ATO investigators. Understandably the jury rejected entirely the false contentions made by the offender with regard to the ATO investigators during the trial.
16. The summary of the relevant spreadsheets between September 2003 and April 2008 was tendered in the trial which focused on High Trade Company, JKC and RHV (and two other developer companies Hightrade International Pty Ltd ("HT Intl") and HT & LI 6 ("HTLI6") together with the tier 2 companies HTC, Auschintle and Ferro Constructions. The spreadsheet is annexed and marked as "B" to the Crown Facts and summarises of the GST "refundable" and "payable" positions of these respective accrual accounting companies.
17. Notably from about January 2004, in most instances, each of the tier 2 builder companies generally recorded GST refundable amounts which largely offset the GST amount payable by each company at the end of those months.
18. The monthly GST refundable and payable records were also confirmed in another summary, adduced by Ms Deimezis from the ATO when she provided "BAS Analyser" records which were maintained by the ATO of the GST claim on sales or claimed as ITCs for each month between September 2003 and April 2008. That spreadsheet is annexed and marked as "C" to the Crown Facts.

THE JKC CONSPIRACY (COUNT 1)

1. What follows is a summary of the full facts presented by the Crown in the sentencing proceedings. For a complete understanding of the facts the Crown Facts should be read.
2. The Chippendale development was undertaken from about January 2004 to about June 2006, although some of the early preliminary work had already been undertaken. On 1 May 2003, HTC was engaged by JKC to undertake the construction work at 12-26 Regent Street, Chippendale for the contract price of $12,650,000 (being $11,500,000 plus GST).
3. The conspiracy in respect to the Chippendale development was effected in two phases. Phase 1 occurred from the period January 2004 to July 2005 inclusive, whereby the GST refundable on the costs of the materials, acquisitions and services, that is the construction costs, were fraudulently inflated by claiming overstated and false ITCs on the basis of inflated invoices (and for fictitious supplies) for construction costs, rendered by HTC to JKC.
4. These costs were rendered to HTC by various associated tier 3 entities for work which was either completed by third-party unrelated entities or was for non-existent work or for inflated costs. Those invoices formed the basis of the BAS lodged by JKC with the ATO. This resulted in an overpayment of GST refunds and illegitimate ITCs.
5. Phase 2 occurred from August 2005 to February 2006 and then May 2006, whereby the GST payable via JKC on apartment sales, after the development had been completed, was offset by claiming overstated and false ITCs on the basis of inflated invoices and again fictitious supplies for construction costs which were rendered to JKC by HTC which, in turn, had been rendered to HTC by various tier 3 entities and then also invoices rendered directly to JKC from a company called Lobbyfit.
6. Those invoices formed the basis of the BAS lodged by JKC which resulted in overpayments of GST refunds and illegitimate ITCs, largely used to offset JKC's GST liability on the sale of apartments from the completed Chippendale development.

FIRST PHASE

1. During phase 1, between January 2004 and the end of July 2006, JKC lodged a total of 19 BAS with the ATO. The total amount claimed as purchases by JKC in its monthly BAS between January 2004 and June 2006 was $52,766,648. The GST refunds paid by the ATO to JKC in that period was $2,569,037. This does not include ITCs relied on by JKC to offset its liability for GST on the completed sale of the apartments. In the GST reporting periods August 2005 to June 2006, JKC incurred a total GST liability on the sale of the apartments of $1,905,380 which was largely offset by invoices received from Lobbyfit (and Y&L) and HTC in that period of $1.9 million.
2. Independent quantity surveyors, NFA, reported that as at 18 July 2005 the value of work completed amounted to construction costs totalling $11,772,574 (or $12,949,832 inclusive of GST) with the costs to complete the work at that time amounting to another $285,176, leaving a total of $12,057,750 (or $13,263,525 inclusive of GST).
3. An expert quantity surveyor was called by the Crown in the trial, Mr Stephen Mee who gave evidence of the reasonable costs to complete the Chippendale construction, having regard to a number of matters he was taken to in evidence by the Crown and in cross-examination by the offender. Mr Mee gave evidence that the reasonable costs to build the Chippendale development would have been around $15 million plus GST which he rounded up to $17 million inclusive of GST. On the evidence adduced, the construction costs of the Chippendale development would most likely be in the range of $12 to $15 million plus GST.
4. The offender was aware of the anticipated costs of the Chippendale development. He signed the minutes of meeting of JKC, HTC and High Trade Company on 17 April 2003 as chair, reporting on all loan documents and resolving to enter into a loan agreement and mortgage for $19.256 million in favour of Capital Finance Australia Limited ("CFAL") which were the primary financiers of the Chippendale development. That amount included the cost of purchasing the land on which the development was undertaken and other costs associated with the development but outside the construction costs.
5. On 2 December 2003, the offender emailed Chang attaching a template progress claim sheet showing that HTC estimation of Bills and Quantities where the purchase price of Chippendale land was $4.7 million and the estimated construction cost was $11.5 million plus GST.
6. On 2 February 2004, the offender instructed Chang and Chan by email that the construction costs to the Chippendale project would be $11.5 million plus GST, plus consultants, equalling $14 million plus GST to build. He also advised that JKC would be the developer and must be registered for GST on an accrual basis monthly.
7. Documents seized from the Hightrade Business Centre in April 2009 included accounting records for HTC which identified building and related services claims made by companies Mainroad Project Pty Ltd, Chippendale Projects Pty Ltd, Newstle Esplanade Pty Ltd, Lilu Supp Pty Ltd and Sylvania Project Pty Ltd. In particular, those five companies (together as "Project Companies") were claiming precisely 130% of the anticipated costs of the Chippendale development, see exhibit Mee_006. Exhibit Corke_012 analysed the invoices issued by HTC to JKC and received by HTC from various associated and unrelated entities in respect of the Chippendale development derived from the printed journal entries of HTCs ledgers which had been seized in April 2009.
8. The exhibit identified each entry posted into the ledger from HTC to JKC with the entry "CHI" for Chippendale, together with all entries posted as invoices received from HTC to CHI reference. The exhibit showed that, after rounding: 1. $29.5 million worth of invoices had been issued from HTC to JKC in respect of the Chippendale development, including $2.68 million of GST, 2. $26.88 million of invoices had been received by HTC from various associated and unrelated entities in relation to the Chippendale development, including $2.45 million of GST. 3. Of all of the invoices recorded in the HTC books as having been received for the Chippendale development, $15.96 million were from associated companies, including $1.45 million of GST. 4. The quantum of invoices received by HTC for non-associated companies was about $10.9 million.
9. The difference between the invoices received by HTC from non-associated companies, amounting to $10.9 million which was close to the original estimated construction costs of $10.5 million. The construction, the first phase ended in about August 2005 when the occupation certificate was issued on 3 August 2005 and the apartments were then sold. Exhibit Corke_012 pp 178 to 184 showed that the Project Companies and Chang companies cumulatively invoiced HTC almost $16 million in respect of the JKC development, which was relied on by HTC to offset as GST liability from invoices it had issued to JKC. These invoices were, in large part, false and inflated and used by the co‑conspirators including the offender who perpetuated the conspiracy.
10. As noted already, Mr Mee gave evidence that after accounting for delay and some additional costs, the reasonable costs of the Chippendale development could have been around $15 million plus GST, which he rounded up to $17 million including GST. Whether the actual construction costs to build the Chippendale development was $15 million plus GST (as a reasonable costs estimate) or was substantially less (as an analysis of HTC's incurred third party invoices and tier 3 associated invoices suggest), the loss to the ATO in the first phase of the JKC conspiracy was likely to be in the order of $1.5 million, from overstated invoices of about $16.5 million.

SECOND PHASE

1. The sale of apartments from the completed Chippendale development generated a GST liability for JKC on each apartment sold, however as apartments were sold, JKC received numerous invoices from a company Lobbyfit (and also initially HTC). In the "second phase" from August 2005 to February 2006, then in May 2006, JKC lodged BAS claiming GST input credits totalling $1,836,777 as an offset against the GST payable on the apartment sales leaving only $68,603 GST as payable.
2. Despite the building being completed, the invoices from HTC for building costs during the period of $2,760,000 and materials allegedly supplied and invoiced by the company Lobbyfit, amounted to $16,690,450.
3. Tendered through Mr Mee was a table of invoices from Lobbyfit used by JKC to offset as GST liability in its BAS for the months of August 2005 to June 2006. That table was not completed as it only recorded $10.76 million of invoices for items of furniture, allegedly purchased by JKC which it relied upon to offset its GST. However, the schedule demonstrated that JKC purchased a vast number of items of furniture for each apartment. Items included, for example, 32 lounges for each apartment.
4. The Chippendale development consisted of 56 apartments together with the commercial space and the apartments were being sold unfurnished. At trial, the offender conceded that the furniture was billed to JKC. It could not have been for that development.
5. The Crown evidence established that the Lobbyfit invoices were all false and were generated with the intention of offsetting the GST liability accrued by JKC on the sale of the apartments. The monthly total of the claims made by Lobbyfit fluctuated to reflect the amount of JKC's GST liability for each month, and in the months when JKC had no GST liability because of making no sales, Lobbyfit did not issue any invoices to JKC.
6. The offender contended that it did not matter who had imported or purchased the Lobbyfit goods or whether JKC used the invoices to offset its GST liability because it was done in accordance with what the law allowed and it was just a business decision.
7. The issuing of false invoices so as to create a GST offset to avoid paying tax is an illegal practice and certainly not a legitimate business decision. The offender's approach to this issue demonstrated to a significant degree the manner in which he approached payment of GST generally, that is, that it was optional at best.
8. Over the course of the second phase, JKC lodged a total of ten BAS with the ATO, during which much of its reported GST liabilities was offset by ITCs based on invoices from HTC and Lobbyfit. All the invoices issued by Lobbyfit to JKC were for building services not provided to JKC or otherwise accounted for by JKC, such as any on-sales to RHV. When JKC was placed into external administration and liquidated, the liquidator was informed "that there were defects with the stock imported from China and as it was not compliant with Australian standards, most had to be scrapped", as the basis for which JKC wrote off $15.1 million of assets or inventory. This information was provided by the offender's then personal assistant at the time, Audrey Zhou. JKC never reversed its ITCs that it claimed on account of the Lobbyfit invoices.
9. The whole of the GST component of the Lobbyfit invoices, amounting to $1.518 million, was generated in furtherance of the conspiracy. It was fully paid by the ATO and was never recovered prior to the JKC liquidation.

OFFENDER'S KNOWLEDGE AND INTENTION

1. From the period of February 2004 to June 2006, the offender, Chang, and Chan frequently corresponded with each other in relation to the creation of invoices and BAS submitted on behalf of JKC. The evidence establishes that throughout the Chippendale development, the offender, Chang and Chan regularly communicated in emails: 1. Informing the offender on proposed claims to be made for GST; 2. Receiving the offender's instructions and confirmation before proceeding to lodge the monthly BAS; and 3. Discussing responses to the ATO's GST verification in March 2004 of JKC, including the response to be provided by external accountants WHK Horwath.
2. A simple review of any emails contained within the evidence shows how the three men worked closely with each other and generally to the exclusion of others, although some emails included other company officers such as Messrs Di Vito and Cockinos, in respect of determining and facilitating the amount or amounts to be invoiced between the Hightrade Group companies and using those amounts to justify JKC's monthly BAS. Examples of the communications are outlined in the Crown facts. Here is but one example, on 16 September 2004, Chan emailed Chang with a copy to the offender asking, "Please instruct how to issue builder invoices".
3. What followed on 16 September 2004 in an email exchange demonstrated how the JKC and RHV conspiracies were carried out, see Email_208, 210 and 211 which showed the following: 1. On 18 September 2004, Simon Chan emailed Peter Chang and the offender with the GST status of the companies at that date. 2. On 21 September 2004 at 11:54am, Chan emailed Ms Lan with a copy to Chang an instruction to issue invoices totalling $658,024 so that HTC only had to pay $10,172 to the ATO for the month of August. This reduced HTC's GST liability from $668,196. 3. About 4.5 hours after that email from Chan, Email _211 and its attached Excel spreadsheet shows the BAS position of the companies after lodgement of the BAS. HTC's refundable position had increased to $881,260 to largely offset its GST liability of $882,365, such that after taking into account the PAYG liability, HTC had a liability of $10,171. That is, within one dollar of the target amount referred to in the earlier email between Ms Lan, Chan and Chang.
4. This method of reducing the GST was utilised throughout the conspiracy with respect to both JKC and RHV as well as other property developments being completed by the Hightrade Group in the same timeframe, leading to significant amounts of money being paid by the ATO with regard to these unjustified GST claims.

THE RHV CONSPIRACY (COUNT 2)

1. As was the conspiracy concerning the Chippendale development, the offender was the mastermind of the RHV conspiracy. RHV was responsible for the construction of a hotel resort complex consisting of 150 hotel rooms, together with associated dining and entertaining areas and 175 villas. The development also included the renewal of an existing golf course. The development is located at Pokolbin in the New South Wales Hunter Valley and is presently occupied by Intercontinental Hotel Group, trading as Crowne Plaza.
2. The construction works occurred over a three-year period from March 2004 to June 2007, although earlier preliminary works were undertaken in 2002 and 2003 to preserve the development approvals. The main construction work was predominantly undertaken in three stages: 1. Stage 1, from March 2004 to May 2006, was known as the "hotel" phase of construction. This stage concerned the construction of a 150-room hotel, associated entertainment areas and renovations to the existing golf course. 2. Stage 2, from May 2005 to June 2006, was known as the "south village" and concerned the construction of 72 villas. 3. Stage 3, from November 2005 to June 2007, was known as the "north and east village" and concerned the construction of 103 villas.
3. The Hunter Valley development was very large and occupied over 100 hectares of land, including the golf course, internal roads and the three "villages", a hotel and other associated buildings and services.
4. RHV was registered for GST with the ATO and was entitled to claim GST refunds in the form of ITCs when lodged against its periodic BAS. At all relevant times RHV was registered with the ATO to account for its GST on an accrual basis monthly.
5. The offender together with Chan and Chang were involved in the preparation and lodgement of BAS to claim GST refunds in the form of ITCs to which RHV was not entitled. The offender and his co-conspirators communicated about, and participated, in the preparation of invoices containing fictitious costs from other entities which were then rendered to RHV. Those other entities were either related to the Hightrade Group of companies or employees or family members of the offender. Those invoices formed the basis of the BAS containing overstated expenditure lodged with the ATO.
6. The invoices from the tier 2 builder companies to the developer RHV for the costs of the development far exceeded, in the order of more than $100 million and possibly as much as $150 million, the true cost of the development according to other contemporaneous sources of information, including independent quantity surveyor reports from NFA, original cost estimates supplied for project finance and insurance amounts. The invoices from the tier 2 builder companies to RHV were largely used by RHV to support its monthly BAS and claims for GST and ITCs.
7. The total claimed costs incurred in the construction of the development as recorded in the RHV MYOB records, which were the basis for the calculation of the BAS, was $227 million during the period 2004 to 2008. The total costs recorded by NFA, the quantity surveyors engaged by the financiers of the development, were $65.4 million. NFA was an "arms-length" quantity surveyor firm engaged by the financier (CFAL and later, the St George Bank) providing finance to the RHV project. NFA was engaged by the financiers to complete a project audit, review the project costings and to report periodically to CFAL and St George Bank on the progress, including the cost to complete the project.
8. As with the JKC development, NFA provided progress claim reports for the various stages of the development to CFAL to finance the project. These claims were based on claims submitted by Mr Di Vito who in turn received his information from the project manager or the offender. As with the Chippendale development, the offender signed relevant loan documents which included a borrower's estimate for the project. There were also emails exchanged with the offender and inhouse Hightrade designers prior to the commencement of the construction, seeking to reduce the costs of Stage 1 of the development, the hotel, to $22.5 million.
9. Insurance was also obtained for the development during the construction. Although insurance cover changed from time to time, the highest value for the entire construction project was $81 million, which reflected a reasonable assessed replacement construction costs.
10. Merran Kemp from the ATO was involved in a GST audit of the BAS returns lodged by RHV. Whilst the audit was initially for a defined period from about March 2007, it was extended to include the period 1 January 2003 to 31 January 2007. In conducting this audit of RHV's BAS returns, the ATO had regard to a number of third-party sources, including the insurance documents, quantity surveyor reports from NFA, figures contained within the valuation reports such as estimated or instructed construction costs, funding tables provided by CFAL and St George Bank including estimates of construction costs provided to these funders and other additional information.
11. The ATO considered that the building costs were in the order of $72.7 million and allowed for an additional $19.5 million of funding for costs such as injected funds, monies available in a hire-purchase agreement and an overdraft and a further financing facility.
12. The ATO did not accept the invoices from the builder companies to RHV as reflecting the genuine cost to build the resort and its associated costs. In total, the ATO allowed for $92.15 million in building costs with a GST component of $8.38 million as against the ITCs claimed by RHV of $24.33 million. The ATO therefore determined that there was a $15.95 million overclaim of GST based on over $170 million of overclaimed expenditure.
13. The ATO's attempt to obtain evidence of the true cost to build the resort were largely rejected by RHV and its accounting representatives, with RHV relying substantially on the invoices it received from the builders HTC, Ferro, Andian and Auschintle to justify its BAS returns.
14. Mr Mee, the independent quantity surveyor called by the Crown, gave the following evidence at trial estimating the construction costs of the development to be about $100 million plus GST, with an estimate for the whole development, not only construction costs, of about $124 million to $129 million inclusive of GST. This may be compared with the "construction costs" invoiced to RHV by the four builder companies which totalled $227 million.
15. As with the JKC development, many millions of dollars were invoiced to HTC for work which other, unrelated, companies had already provided. An analysis of the invoices to HTC ledgers for invoices issued in respect of the RHV development recorded as "HUN", "HUG", "HUV" and "HUC", tendered as part of exhibit S50_007 showed that: 1. HTC issued invoices of $105.8 million to RHV on account of their building costs; 2. HTC received invoices of $102.9 million which were posted into its accounting software as "HUN", "HUG", "HUV" and "HUC"; and 3. Of the $102.9 million so posted, $73.7 million were from companies associated with the Hightrade Group and the offender, with the remaining $29.2 million from other entities.
16. Mr Samuel, an independent expert accountant called by the Crown, provided an analysis of the RHV ledgers which recorded $110.7 million including GST, invoices issued from HTC to RHV of which $36.4 million was recorded by RHV as having been paid, and the remaining $74.2 million after some rounding was "transferred". The $74.2 million "transferred" from HTC invoices loosely corresponded with the quantity of invoices issued by the associated entitles to HTC for the RHV development, namely $73.7 million.
17. In this way, HTC was invoiced tens of millions of dollars from associated companies, being those ostensibly controlled by the offender, for goods and services not actually provided or undertaken on the RHV development.
18. These fraudulent invoices or claims were used to offset the invoices issued by HTC to RHV which had in turn been relied on by RHV in its monthly BAS to support RHV's claims and for millions of dollars in GST returns during the indictment period. These claims for GST refunds were all ultimately paid to RHV by the ATO.
19. Mr Samuel's analysis also showed that RHV had recorded $89.9 million including GST of invoices from another builder company, Auschintle, of which $27.2 million was recorded by RHV as having been paid and the remaining $62.7 million was "transferred".
20. Records such as exhibit Crowe_000_2 from which exhibit Corke_012 for JKC and exhibit S50_007 for RHV were derived, were not seized relating to Auschintle. However, Mr Samuel's analysis of RHV's payment of Auschintle's invoices demonstrates that a similar proportion of invoices were treated from within RHV's internal accounting MYOB records as having been paid and the remaining $62.7 million as being transferred into other internal accounts.
21. Mr Samuel's analysis of the builder company, Ferro invoices posted in the RHV MYOB books show that they had all been recorded as being paid. However, on closer inspection, such as by the ATO officer Mr Treloar, as well as by Mr Samuel, many of those transactions were involved in a "round robin" transaction, in which the same or very similar amounts of money were transferred through a number of different bank accounts of companies associated with the High Trade Group, ending up in the account in which they had started and then repeating again in subsequent days. This conduct was consistent with instructions given by the offender to Chan and Chang and also the offender's former wife, "Maggie" Yan Lan, as is evident in emails dated between 4 December 2007 through to January 2008.
22. Mr Samuel's analysis of the Andian Group invoices posted on the RHV MYOB records showed that $27 million of those were recorded as having been paid in cash, however evidence obtained during the April 2009 search warrant of the Hightrade premises included printouts of tables showing how and to which entities the Andian Group invoices to RHV were to be treated.
23. Analysis of the banking records showed that payments recorded as having been paid to Andian, a cash accounting entity which would have accounted to the ATO on the money it received, were actually paid to Ferro, an accrual accounting entity. From this evidence it is far from clear what the actual costs of the RHV development were, however it does demonstrate that the actual cost must have been many tens of millions of dollars less than the amounts claimed by RHV in its monthly BAS.
24. It would be a conservative estimate, that is giving the offender the benefit of the doubt in many respects, to find that the overclaim was $100 million. This is consistent with the "reasonable costs" estimated by Mr Mee and is set out in exhibit Mee_004, namely that the construction cost of the RHV development would have reasonably fallen with the range of $110 million, inclusive of GST in the figure of about $10 million.
25. Given that RHV had claimed at least $22 million in GST ITCs from the invoices issued by the four construction companies HTC, Auschintle, Ferro and Andian, the overclaim by those companies in the invoices issued to RHV amounted to a fraudulent claim of about $10.5 to $12 million in illegitimate GST refunds.
26. As with the JKC conspiracy the "Project Companies" were used to arbitrarily inflate the invoices issued to HTC to offset HTC's inflated invoices to RHV. Documents seized from the Hightrade Business Centre in April 2009 showed that calculations had been undertaken for false claims to be made by the Project Companies at 160% and then 170% of the trade categories and values which had been provided to NFA and the financiers.

OFFENDER'S KNOWLEDGE

1. The offender was the ultimate controller and decision maker in respect of the RHV development even after he ceased as the director of RHV. Evidence from emails taken from various computers, servers and hard drives after the execution of the 2009 search warrants also demonstrated that the offender exercised close scrutiny and control over the financial affairs, in particular the GST and taxation affairs of numerous companies associated with the Hightrade Group even after he had ceased to be or had never been a director, secretary or shareholder of that particular company. These include, 1. The offender instructed the incorporation of Safety Monitor Pty Ltd. On 6 February 2005 the offender sent an email to Chang which stated, "pls (please) go ahead to register new firm under tie nan zhang, you should have his detail in file, he will fly back to Sydney on 8th and arrive on 9th". 2. Maggie Lan was the sole director of Lanford Group, a tier 3 company as well as operating her own business under Y&L. 3. A document titled "Builder Claim Chart 04051.xls" provides a table outlining a number of responsibilities which were attributed to Maggie. 4. Chang prepared an instruction on High Trade Company letterhead to incorporate Auschintle in a number of the tier 3 entities, including Lobbyfit, CeinaHolding Pty Ltd, Club Housing Pty Ltd, Gift&Toy Suppliers, Health Club Package Pty Ltd, Ada Control, Sylvania Project Pty Ltd, Chippendale Project. Chang also provided instructions on Hightrade Business Centre letterhead for the external accountant Mr Hill to incorporate tier 3 companies such as Path Choice Pty Ltd. 5. Where a new replacement director was appointed to replace Chang (for example, Siguang Lu for Club Housing), there were no ATO or immigration or citizenship records of any person by that name, including any records of that person entering or leaving Australia. In another example, Xi Lin Yan for Lobbyfit was appointed on 9 May 2005. Xi Lin Yan left Australia on 24 January 2002 and has never returned. 6. A number of the tier 3 companies have the same phone number and/or address recorded on their ASIC registration documents.

EMAIL CORRESPONDENCE INVOLVING THE OFFENDER

1. The offender was involved in giving directions, seeking information, or was copied into correspondence between Chan and Chang including: 1. On 26 June 2004, Chan emailed the offender and copied Chang stating, "Besides we have to estimate how much value we need for the June GST purpose and issue June invoices to both HT and HTC now. A preliminary BAS information is enclosed herewith." 2. On 17 July 2004, Chan emailed Chang, copy to the offender, stating "Please review the enclosed updated information and instruct how much to invoice JKC, HTLI6, HunterValley and HT Intl. James [the RHV external accountant] requested to have the information on Monday." 3. On 17 August 2004, Chang emailed the offender, copying Chan, to this effect, "The July BAS info as per Simon's worksheet. After discussion with Simon, our solutions are as below… 3 Hunter Valley, HTC builder issue invoice to developer for 3.06M, Resort Hunter will get gst refund for 290,000; Note: value of QS report is 11,714,313, we claimed 10,412,300 up to July 04." 4. On 2 July 2005, the offender was copied into an email from Chan to Chang attaching preliminary BAS spreadsheet for June 2005, including attachment titled "Auschintle Invoice - June 2005" and "HTC invoice - June 2005". 5. On 7 December 2006, the offender wrote to Chang and Chan concerning payments to be made stating, "hi, this friday, pls [please] desk/internet to pay from ferro: $20,000 to george liu, the gyprock in RHV, let david and george know of this payment; $20,000 to kitchen people, mr gao? work in RHV kitchen, let david know of this payment; $10,000 to peter, of painting guy in RHV, let david know of this, also let jackson know too for the above payment in the means time, pay from RHV to auschintle tomorrow about $38,000 to pay reimbursement as discussion before, yrs [yours] li." 6. On 14 September 2007, the offender sent an email to Chan. The offender directed Chan to "clam [sic] $1.5m from ferro to rhv for supplier FF&E for month of August in additional cons cost… so you can start to do gst report." 7. On 16 October 2007, Chang sent an email to Connie Huang, copied Chan and the offender, stating "pls [please] issue invoice as below for Sep 07 period first. 1. Ferro issue invoices to below companies: a) Resort Hunter Valley, for villa, 1,200,000 + GST; b) Merewether Wharf, progress claim for 1,900,000 + GST; c) Sky Central, progress claim for 2,000,000 + GST. 2. HT Buildmat bill to Ferro for 75,000 + GST for supply New 2 site. 3. Safety Monitor bill Ferro for 82,000 + GST for New 2 site. then update the gst spreadsheet give back to me." 8. On 16 October 2007, the offender replied to the above email at (g) stating, "better check with simon chan the amount to be claimed which has been fixed agreement exist."
2. Emails recovered from electronic items seized from the search warrants executed at the Hightrade Business Centre and Chang's residence also included emails between Gloria from Maggie Lan's office and Chan in which Chan had directed invoices to be generated by Gloria for work on the RHV development, and those invoices were then provided in Excel form from templates. Many of the invoices contained the same amount or followed a pattern of increasing amounts every two or three days. Those invoices were provided for periods where the BAS returns, based on the quantum of the invoices, had already been lodged with the ATO. An example of these emails and invoices was: 1. On 24 January 2006 at 3.15pm Chan sent an email to Maggie Lan and Gloria headed, "Invoices required" and stated, "Dear Maggie/Gloria, please provide invoices per attached worksheet." 2. The email attached an Excel spreadsheet titled "Tax invoice to Hightrade 11-2005 Hunter Valley Villas". 3. At 3.56 on the same day, Gloria emailed Chan attaching a document and stating, "Please find the attached invoices." 4. Chan then emailed the documents to Wendy Li, instructing her to "Please print out Gloria's invoices". 5. The attachment contained 16 invoices from Lobbyfit to HTC dated between 1 November and 28 November 2005, for work including four claims for "roofing", each in the sum of $42,081.08 plus GST. Then three claims for "gyprock", each in the sum of $49,873.87 plus GST. Then three claims for "paver and tiler", also in the sum of $49,873.87 plus GST. Then three claims for "carpet" in the sum of $37,405.41 plus GST. Then three claims for "painting", also in the sum of $37,405.41 plus GST.
3. Emails received by Chan on 27 January 2006 attaching invoices for the RHV Hotel followed a similar formula with Lobbyfit invoices to HTC for various trades as well as loose and fixed FF&E, and on 14 February 2006, he received additional attachments containing numerous invoices from Lobbyfit to HTC for various trades and variations which also followed a similar pattern.
4. Many similar emails and attachment with pro-forma invoices generated on Excel spreadsheets from Hightrade Group associated companies were tendered during the trial, showing that this practice was undertaken extensively, generating false invoices to support invoices and claims made by HTC and Auschintle to RHV, which in turn were relied on by RHV to claim substantial GST refunds from the ATO.

EVENTS FOLLOWING THE EXECUTION OF THE SEARCH WARRANT IN APRIL 2009

1. On 25 April 2009, the offender departed from Australia to Hong Kong, ten days after the execution of the April 2009 search warrants on the Hightrade Business Centre and the residences of Chang and the offender's former wife, Tao Bai.
2. On 15 January 2010, receivers were appointed to RHV. On 5 March 2010, Chan departed Australia and has never returned. On 28 May 2010, a liquidator was appointed to RHV. At the time of the liquidation, the ATO claimed RHV had a debt of $15,844,648 in primary tax, including overclaimed ITCs, the subject of this conspiracy. On 1 September 2014, RHV was deregistered.
3. In April 2019, the offender was arrested in New Zealand on arrest warrants which were issued in respect of both the JKC and RHV conspiracy charges. In September 2019, the offender was extradited to Australia and was remanded in custody until he was granted bail on 12 April 2022. The offender was remanded in custody following the jury's guilty verdicts on 9 October 2023.

SERIOUSNESS OF THE OFFENDING

1. The seriousness of the offending is obvious from the facts recited. This was a complex, sophisticated fraud designed to obtain the benefit of GST payments or offsets, ITCs to which neither JKC or RHV was entitled. The seriousness of this type of offence is also emphasised in the maximum penalty attaching to its commission. Here, the maximum penalty is ten years imprisonment for each offence and there is a potential accumulation of the penalty to a maximum of 20 years imprisonment. I take the maximum penalties applied by Parliament as a yardstick with which to regard the seriousness of the offending.
2. From the outset, I acknowledge what was said by the Court of Criminal Appeal in Dickson v R [2016] NSWCCA 105 with regard to the accumulation of the sentences. The Court noted at [198]: "Care unarguably had to be taken in the application of the totality principle to ensure that a crushing sentence was not imposed on the appellant, that is, one which would induce a feeling of hopelessness and destroy any expectation of a useful life after release. That undoubtedly required the imposition of some concurrency. [199] Application of the totality principle also had to result, however, in a sentence reflective of the overall criminality in the appellant's entire offending, one which ensured that there was no suggestion that there had been a discount for multiple offending."
3. Counsel appearing for the offender, Mr Glissan KC, has argued that there ought to be minimal accumulation for the two offences. It was argued that the offender essentially used the same method to complete both offences and consequently the offences can be seen as all part of one extended act of criminality.
4. I accept, as Tupman DCJ did when sentencing Chang following his plea of guilty to the RHV charge, that the two offences were factually similar, but just the same, they were distinct and require separate sentences. They were committed at different times. The JKC offence involved the development of apartments which were to be sold for profit. The RHV offence, by contrast, was the development of a very large-scale resort hotel and golf complex which the offender ultimately hoped to own himself outright.
5. The RHV offence was a far more serious and elaborate example of the offending perpetrated by the offender and the co-conspirators. For the reasons given in Dickson there should be no suggestion left following sentencing that the offender has received a discount for committing two separate offences.
6. It is trite to say that the offender did not have to commit the second offence involving RHV, he could have realised the criminality that was involved in committing the JKC offence and not perpetrated and expanded the same scheme as used in JKC in committing the offence involving RHV. He chose to continue with his criminal actions and must accept that those actions require significant punishment.
7. In Regina v Pont [2001] NSWCCA 419;121 A Crim R 302, the Court of Criminal Appeal outlined a number of useful principles to guide the assessment of the objective seriousness of white collar crime. The Court noted that the following factors are relevant to that assessment: 1. The amount of money that was defrauded. 2. The position held by the offender. 3. The accompanying breach of trust involving the offending. 4. The degree of planning, premeditation and sophistication of the offences. 5. Whether there was a multiplicity of offences or dishonest acts associated with the offending. 6. The length of the period of time over which the offences were committed. See also Hili v R, Jones v R [2010] 242 CLR 520 at [63].
8. I also note that many of these factors are relevant to the assessment of Commonwealth offences under s 16A(2) of the Crimes Act 1914 (Cth).

AMOUNT OF MONEY DEFRAUDED

1. The Crown has estimated that the total amount lost to the revenue with regard to the JKC fraud was $2.5 to $3 million. The total amount lost to the revenue with regard to the RHV fraud was $10.5 to $12 million. I note the offender does not seek to contest these amounts. These amounts, and particularly the loss identified with the offence committed in relation to the RHV project, are extremely large. Having said that, the loss is not as large as some other recent offences, for example the offences outlined in Dickson at [162] or those dealt with Payne J in R v Cranston [2023] NSWSC 454 at [69], both of which involved losses of over $100 million. Both Dickson at [167] and Cranston at [77] were offences said to be falling at the top of the range of seriousness. I will return to consider where this offence sits in the range of objective seriousness for such offending.
2. The loss of money is not the only criteria used to determine the objective seriousness of an offence but it is a relatively straight forward indicator that can be used as a comparator with other offences. As was pointed out by the majority in the High Court in Hili at [63]: "The amount of tax evaded was not small. Detection of offending of this kind is not easy. Serious tax fraud, which this was, is offending that affects the whole community. The sentence imposed had to have a deterrence and punitive effect, and those effects had to be reflected in the head sentences and the recognizance release orders that were made."
3. Under no circumstances can offences of this kind be regarded as victimless crimes. To the contrary, the victims are the members of the community that must inevitably not have had access to services and resources that could have otherwise been provided by the provision of proper taxes had the offender paid those taxes.

POSITION OF THE OFFENDER

1. The role played by the offender is outlined in detail in the facts recited above and in the agreed statement of facts which is contained within the sentencing material produced without objection by the Crown.
2. The offender was the owner and controlling mind of the Hightrade Group of companies. Both JKC and RHV fell under that group. He was described as "the boss" by Mr Cockinos, who was the director of some of the companies in the group.
3. The offender during the trial did not disavow that description, to the contrary, he expressed pride in that role that he played in the group of companies that he had built.
4. Moreover, the companies were private entities whose profits and assets were primarily at the disposal of the offender.
5. During the trial the offender submitted that Messrs Chan and Chang should not have been regarded as co‑conspirators as they merely worked under his instruction. With respect to the offender, this observation accurately provides a distinction that can and should be made between the roles of the co‑conspirators and his.
6. It was held in Tyler v R (2007) 173 A Crim R 458 at [83] to [84] that: "[83] Sentencing for specific acts committed by the offender alone would be a negation of the complex interconnection between the various participants and the organisational nature of the conspiracy. It would represent too literal an application of the decisions that identify the role of any participant as a relevant factor in the sentencing exercise. It would be to ignore the essential feature of the conspiracy - the agreement to participate in an organised criminal activity. [84] That is not to say that the physical acts of the offender whose sentence is under consideration are irrelevant. They are relevant, as one part of the complex tapestry..."
7. The remarks in Tyler are, with respect, completely apposite here. The number of acts directly committed by the offender are relatively small when compared to those committed by the co‑conspirators who were in effect tasked with implementing the fraudulent scheme designed by the offender. But none of that negates the obvious role played by the offender as the controller and owner of these companies. It was he who stood to significantly gain by the implementation of the fraudulent scheme whereas Messrs Chan and Chang, whilst being vital to the scheme's implementation, were quite properly identified by the offender as his employees (even if at times they were independent contractors to High Trade).
8. A submission to the effect that "all conspirators are largely to be equated" (see p 6 Defence Written Submissions) cannot be accepted given the vast disparity of the roles that the co-conspirators undertook.

BREACH OF TRUST

1. In R v Kelu; R v Millner [2023] NSWSC 1537, Cavanagh J made the following observation with respect to the breach of trust and the GST tax system: "Further, tax fraud involves a significant breach of trust, in the sense that our modern system of tax collection is one of self‑assessment: R v Boughen; R v Cameron [2012] NSWCCA 17 at [73]. Certainly, there are audits and checks undertaken by the ATO but taxpayers are generally trusted to complete honest and accurate tax returns. This is particularly so in the business community where, since the introduction of the GST Act, businesses have become tax collectors on behalf of the Commonwealth. They receive GST in respect of goods that they sell and then must account to the Commonwealth on a regular basis via the lodgement of Business Activity Statements. Because of the nature of the GST-based tax system, and subject to an entitlement to offset, a business is receiving money which does not belong to it. It is merely holding the money on behalf of the Commonwealth until such time that it is required to pay the money to the Commonwealth."
2. Those remarks apply equally here. There is no doubt that the offender here designed a scheme that was intended to take advantage of the GST system. However, evidence was given in the trial from ATO officers that generally BAS returns as filed were accepted and GST refunds were paid by the ATO so as to enable businesses to continue to function properly. This is the system that the offender exploited. Companies such as JKC, as an example, were paid significant sums of money based on BAS returns filed with the ATO which relied, in large part, on fraudulently concocted invoices which of course JKC never actually paid.
3. By the time the fraudulent activity was detected by the ATO through an audit, the company had been placed in liquidation and there were no assets available to repay the overpayment of taxes involved. As Cavanagh J pointed out, this involved a breach of trust that the ATO provides to business to allow the business to function. This is the breach of trust that the offender engaged in.

DEGREE OF PLANNING, PREMEDITATION AND SOPHISTICATION INVOLVED

1. The scheme involved with both the JKC and RHV frauds required a high degree of planning and sophistication to implement. As much is made clear in the facts already quoted, in no sense did the scheme involve the offender simply miscalculating the GST that ought to have been paid to the ATO. There was no inadvertence involved. This was a deliberate fraud from beginning to end.
2. In both cases it required the production of false invoices that were used to concoct a false GST return. In the case of RHV, the production of false invoices reached an almost industrial scale, hundreds if not thousands of such invoices were prepared. To assist in this process, as many as 100 companies were incorporated. There was a high degree of sophistication and coordination involved in the implementation of the scheme. In my view, the degree of sophistication involved greatly enhances the objective seriousness of the offences and the moral turpitude of the offenders who undertook the scheme.

WHETHER THERE WAS A MULTIPLICITY OF OFFENCES OR DISHONEST ACTS ASSOCIATED WITH THE OFFENDING

1. As already noted, the scheme required the production of false invoices from companies purporting to supply goods and services to the builders of the JKC and RHV developments. Those service companies only paid tax on a cash receipt basis and generally the companies were not paid the amount set out in the false invoices by the builders.
2. The use of these entirely concocted invoices was designed to facilitate the builder companies which reported their GST on an accrual basis to offset the greatly inflated building costs that were invoiced to JKC and RHV. The highly inflated building invoices then provided a basis for JKC and RHV, who also reported on an accrual basis, to claim inflated and false costs on their BAS returns which generated significant GST refunds to which neither company was entitled.
3. As noted, the whole scheme required the production of hundreds of false invoices. Moreover, it required a significant degree of coordination so that each month when the BAS returns had to be completed the builder companies were able to offset GST that should otherwise have been paid to the ATO.
4. Much of the above is merely repetitive to what I have outlined in the facts but the point of repeating it here is to emphasise the degree to which the co-conspirators were parties to the preparation and use of thousands of false documents over many years for the sole purpose of obtaining GST refunds to which JKC and RHV were not entitled.
5. It has been long recognised that the utilisation of other criminality to perpetrate a fraud enhances the objective seriousness of the offending.
6. In these cases, the production of the literally thousands of false invoices over many years demonstrates a utilisation of other criminality and it enhances the seriousness of the offending in both cases.

PERIOD OF TIME OVER WHICH THE OFFENCES OCCURRED

1. The timeframes for the commission of the two offences are set out in the facts. In the case of JKC the period was two and a half years. In the case of RHV, nearly four years.
2. The significance of this factor is that it demonstrates that the offences were not isolated aberrations but were planned and executed over many years. Again, this enhances the seriousness of the offending.
3. Whilst many of the factors addressed above are also addressed in the factors outlined in s 16A(2) of the Crimes Act 1914 (Cth), I will briefly address the s 16A(2) factors which a sentencing court must take into account in a federal offence. In addressing these factors I will not double count them with the matters that I have already addressed.
4. Section 16A(2)(c), if the offence is a part of a course of conduct consisting of a series of criminal acts of the same or similar character, I have already addressed this factor. The offending in both JKC and RHV occurred over a period of four years.
5. Section 16A(2)(e), injury or loss resulting from the commission of the offence, I have already indicated that tax fraud is not a victimless crime.
6. Section 16A(2)(h), the degree to which the person has cooperated with the enforcement agency in the investigation of the offence. There is little evidence of any significant cooperation by the offender with enforcement agencies who were prosecuting the offences prior to the hearing of the trial. The offender had to be extradited from New Zealand to face trial. There was a significant delay between the extradition and commencement of the trial and I will address that separately. He remained bail refused until shortly before the trial commenced.
7. The offender is not to be punished for not providing cooperation. The offender chose to represent himself in the proceedings, but again I emphasise he is not to be punished for exercising his rights in that regard. This factor really looks towards any positive action that the offender took to facilitate justice. The only matter that the offender raised was the matter he raised at a time when he was representing himself. He submitted that he had cooperated with the court proceedings, allowing it to proceed generally without interruption.
8. To that extent I acknowledge that the then accused did generally work diligently to be prepared for evidence as it was being presented in Court. There were only rare delays in the proceedings when the then accused sought more time to prepare for future evidence. I acknowledge this during the trial and I am happy to acknowledge it now.
9. I should also note that the Crown worked cooperatively with the offender to ensure that he was aware of the nature of the evidence to be called in the trial. This greatly assisted him in his preparation. Inasmuch as his cooperation during the trial allowed it to continue without unnecessary delays caused by him, I acknowledge that that cooperation did occur and I will take it into account as a matter of mitigation on sentence.
10. Section 16A(2)(j), the deterrent effect that any sentence may have on the person or other persons. I acknowledge that the offender is now 61. For reasons that I will return to, I accept that he is unlikely to reoffend.
11. The principal consideration here is to what extent this sentence should provide general deterrence to other persons. In my view, the nature of the offending, being undertaken as part of a large-scale building development, does bring into play a substantial need for general deterrence. As previously noted, significant trust is allowed by the ATO to such companies to properly conduct their tax affairs. This sentence must reflect that breach of trust. This case provides an obvious example of the complexity of investigations into companies that breach that trust.
12. The Crown presented thousands of exhibits, extending over 200,000 pages of evidence, much of which was led to address the contentions made by the offender during the trial. In order to properly conduct the trial of this magnitude it was necessary for a jury to each be provided with a laptop computer on which exhibits were displayed. This allowed the jurors to make limited searches on the admitted documents.
13. The trial itself proceeded over a period of more than ten months. At times the Crown utilised three separate counsel to represent it during the proceedings. The cost to the community in conducting such a trial, the necessity for which was occasioned by the criminal actions of the offender and his co-conspirators, was extreme. This sentence should thus do all it can to deter other like-minded developers from deciding to illegally exploit the tax system to their financial advantage.
14. Section 16A(2)(k), the need to ensure the person is adequately punished for the offence. It has long been acknowledged that offenders who commit large scale tax fraud must expect condign sentences. There is no alternative in this case other than the offender will face a significant period of custody. I note that this was not subject to submission by the offender's counsel. In that regard the offender has already been in custody for a lengthy period of time bail refused.
15. I will return to consider the ultimate length of the sentence, but I acknowledge the submission made by Mr Glissan KC that the offender has already, in effect, served sufficient time in custody to represent his non‑parole period. During the sentencing proceedings I rejected that submission, but as already noted, I had not yet determined the length of the two sentences to be imposed or the degree to which those sentences must be accumulated. I will come to that shortly.

CONSIDERATION OF THE OBJECTIVE SERIOUSNESS

1. Having considered all of the matters addressed above, in my view, these offences fall towards the upper end of the range of objective seriousness, the RHV offence being more serious than the JKC offence. I accept a submission made by Mr Glissan KC that these offences cannot be seen as falling into the worst category of offending.
2. In Milne v R [2012] NSWCCA 24 at [297] the Court of Criminal Appeal emphasised the need for "denunciation, general and personal deterrence". Those tempted to engage in large scale tax fraud constitute a class of offenders who are inherently likely to be swayed from offending by the prospect of prosecution and incarceration for a substantial period of time.
3. Authorities binding on this Court require the imposition of a substantial custodial sentence for large scale tax fraud of the kind attempted to be perpetrated in this case; see Hili at [63]; Director of Public Prosecutions v Hamman (unreported, NSWCCA, 1 December 1998); R v O'Connor [2002] NSWCCA 156, to name a few. In Milne at [297] the Court of Criminal Appeal stated: "There is a high community expectation that serious tax fraud will be properly punished and offenders, no matter their business acumen and high status in the commercial world, will be dealt with sternly and appropriately."
4. That is how I will treat the offences committed by the offender here.

CHARACTER AND PERSONAL CIRCUMSTANCES OF THE OFFENDER

1. The offender has no prior criminal history. That is not surprising, he was the CEO of a major Australian property development company.
2. As Gleeson CJ explained in R v El Rashid (unreported, NSWCCA, 7 April 1995), white collar crime is rarely committed by people with a criminal history. R v Rivkin (2004) 59 NSWLR 284 at [410] is authority for the proposition that where, as here, good character places the offender in a position where they can commit the offence, it is of less significance.
3. In the related case of R v Hausman; Hausman v R; R v Rostankovski; Rostankovski v R [2022] NSWCCA 24 at [74], Hamill J, with Fullerton and Adamson JJ agreeing, held that good character may be of less significance where the offender's character and lack of convictions, knowledge, qualifications or standing in their field facilitated or assisted the commission of the offence.
4. With respect, the same observation can be made in this case. The offender's offending was facilitated by his knowledge, qualifications and standing as a property developer. He employed high level public figures to assist in enhancing the reputation of his development company. I find that he used his prior good character and his reputation as a developer in the commission of these offences.
5. The offender has submitted that the development works that he completed in the past had public value and that should be taken into account when sentencing him. In addition, he has referred to the fact that he employed many people who paid tax as a result. He also referred to the significant State taxes that were paid, which were associated with his developments.
6. I accept that the offender's companies were involved in successfully completing a number of developments, including one called Kogarah Square. That development included some public facilities. To that extent, they were beneficial to the community, however it is beyond this case to examine in any complete way the benefits of the Kogarah Square development versus, for example, the benefit to the offender and his companies in completing the development. What were the conditions of approval of the development, if they included the provision of the public facilities to complete the development? It cannot be said that the offender provided them out of the goodness of his heart.
7. I have read the submission prepared by the offender himself, but I do not find that the public good of his development works can be assessed as a positive factor in his favour. In my view, at best, they are neutral.
8. I note that I have read letters from both the offender's daughter and his partner, Ms Meng. Both attest to the character of the offender, but it is also clear that neither addressed the nature and extent of the offender's criminal conduct. I completely understand their distress at the situation that the offender finds himself in, but despite that, I am not of the view that their opinions add any weight to the assessment of the character of the offender.

OFFENDER'S PERSONAL CIRCUMSTANCES

1. The offender is 61 years old. He was born in China but emigrated to Australia in 1990. At that stage, he had qualifications in computer science. He became an Australian citizen in 1994. He told his psychologist that he completed further study in Australia in business management and quantity surveying. He became a property developer around 20 years ago and was involved in and completed many building developments, including the JKC and RHV projects.
2. After the investigation by the ATO into the offender's tax affairs commenced and a search warrant was executed on the High Trade offices in 2009, he left Australia and never voluntarily returned. He claimed during the trial that he had to complete some work in China and earn some money for his children's education in Australia. A warrant was issued for his arrest in 2014. His co‑conspirator was convicted following a trial in June 2015. Ultimately, he was arrested in New Zealand on 4 April 2019 and extradited to Australia on 12 September 2019. I will return to consider the issue of delay in the proceedings and the effect, if any, that the delay should play with regard to the sentence.
3. There was a sentencing assessment report prepared for the sentence proceedings. In that report the offender was quoted as saying that, "he did not send any emails to current employees at the time and believed his accounts must have been hacked or people had access to his emails."
4. The jury's verdict established that the offender was intricately involved in the conspiracy. His continued denials of that involvement emphasise the fact that the offender is not contrite for his actions. He has expressed no remorse for the damage that he has caused by defrauding the ATO. I note that he has been assessed at a medium to low risk of reoffending and that might be accurate based on his profession and his age, but it does not appear that he has rehabilitated in any real sense.
5. The offender apparently has four children by three different relationships. Little is known about the child living in China, but the other three children are adults and live in Australia. I accept that he appears to have been a supportive father in the sense that he supported his children financially, but at the same time he was prepared to leave his then relatively young children in Australia when he left the country in 2009.
6. Tendered in the sentencing proceedings was a detailed psychological report with regard to the health and particularly the mental health of the offender. The report opines that the offender has a longstanding history of persistent depressive disorder for which he has not had appropriate treatment to date. It is recommended that he undertake some psychological treatment to assist, which the psychologist opines would best be completed in the community. Whilst he is in custody he could also benefit from some psychological treatment and I can recommend that.
7. I note that the psychologist also makes observations about the offender's medical health, but I prefer the detailed medical report prepared by Dr Gary Nicholls, the clinical director of Justice Health. That report notes the history of medical conditions that the offender suffered prior to his incarceration after trial, including having a cardiac stent inserted which occurred during the course of the trial. The report notes: "Li Zhang is being seen in clinic for review by St Vincents Correctional Health staff for blood pressure and observational checks, given his medication daily. He appears to be taking his medications without issue. He appears to be quite stable with regard to his medical conditions."
8. The report notes that he will continue to have further medical reviews as required.
9. I acknowledge that the offender does have some significant medical conditions, but there is no evidence that those conditions are not being treated appropriately in custody. Gaol is always a difficult environment for an older offender and I will take that into account.
10. The offender has been in custody during the period of the COVID pandemic. He was there for around two years prior to his admission to bail. He was on bail throughout the trial. It has been recognised that being in custody during the pandemic changed the conditions of custody negatively for the prisoners. There were lockdowns to prevent the spread of the disease. There were interruptions to educational opportunities which could not be continued in the period of the pandemic. It has been found that it is appropriate to acknowledge these difficulties and make an allowance for them on sentence. I will take that into account when setting the sentence.
11. It has been submitted that the offender's partner, Ms Meng, will be significantly affected whilst ever the offender is in custody. Ms Meng is apparently not an Australian citizen, although I was informed that she has a visa to stay in this country. It is not necessary to outline her conditions in detail, which were set out in a detailed psychological report that I have had regard to, but I am satisfied that she has some significant psychological conditions which are exacerbated whilst ever the offender is in custody.
12. The effect that a custodial penalty imposed on an offender can have on a third party or a family member can be taken into account if it leads to some exceptional hardship for that third party. Generally, the probable effect that any sentence or order under consideration would have on any of the person's family or dependents should at least be recognised. Having said that, when sentencing for offences such as tax fraud where general deterrence is of particular importance, the personal circumstances of an offender, including the effect that a sentence may have on their family or dependents, may attract somewhat less weight than they otherwise would: see Totaan v R (2022) 108 NSWLR 17 at [109].
13. Taking account of the effects of the sentence on the offender's family cannot displace the requirement that the sentence imposed is of a severity appropriate in all the circumstances. I do note the severity of Ms Meng's psychological condition and I will take it into account on sentence.

PARITY

1. A submission was made in the proceedings to the effect that the offender's role can be equated with that of Chang, due to the fact that Chang was a contractor through his own company, High Trade, and his role can be seen to be equivalent to that of the offender. With respect, that submission misstates the nature of the relationship between the offender and Chang.
2. As previously noted, the offender was the "boss", the CEO and the majority shareholder of the Hightrade Group. It was his companies, not those of Chang, who was in effect an employee. The offender said, in the sentencing assessment report, that his co-conspirators "did not hold senior positions and he did not believe they had control of the project." With respect, that demonstrates the comparative relationships between the co-conspirators from the offender's point of view.
3. Despite that, Lakatos DCJ, when sentencing Chang, found that Chang's role was significant and important, and that the conspiracy could not have been carried out without his assistance. His Honour fixed a sentence of five years imprisonment following trial, with a non‑parole period of three years for the JKC offence.
4. Chang pleaded guilty to the RHV charge and was then sentenced by Tupman DCJ. Allowing for the plea of guilty, her Honour fixed a sentence of five and a half years with a non‑parole period of three and a half years. The sentence was accumulated on the sentence fixed by Lakatos DCJ by 12 months. In effect, the total sentence was one of six years and six months with a non‑parole period of four years and six months.
5. In setting the sentence, Tupman DCJ acknowledged the plea of guilty without specifying the discount to be applied for the late plea. Even if the discount was only 10%, then the sentence should be viewed as one of over six years imprisonment.
6. Her Honour set a non-parole period that was less than 66% of the total sentence. I am of the view that there are good reasons for fixing this offender's non-parole period at a low percentage, namely, at 66% of the total term, to take account of his age, his medical conditions, his limited assistance, the fact that he has served a considerable period in custody during the restrictions that applied to custody during the pandemic, and also recognising Ms Meng's psychological condition.

DELAY

1. Delay in the trial or sentencing proceedings of an offender can always be taken into account as a matter of fairness to the offender. Delay, of itself, is not a mitigating factor, but might in combination with other factors be taken into account favourably for the offender. Each case depends on its own facts.
2. The Crown have provided a detailed chronology of the whole of the proceedings. The Crown have submitted that, essentially, all of the delay in the proceedings resulted from three things. First, the complexity of the investigation, which is a neutral matter given the offender's role in the commission of the offence. Second, the fact that the offender left the jurisdiction and never voluntarily returned. Third, that the offender made numerous legal applications, resulting in a delay in the proceedings commencing. That was not challenged by the offender's counsel. In my view, those submissions should be accepted.
3. On behalf of the offender, it was submitted that the offender now presents as a different person to the one who left the country in 2009. He is considerably older and has more extant medical conditions. Further, he has suffered the stress of the trial, during which he was unrepresented. I have and I will take into account the offender's age and his medical conditions. The fact that the offender was unrepresented during the trial was as the result of a choice that he made. He had been provided with a solicitor and counsel by Legal Aid. For what I regarded as entirely spurious reasons, he decided not to utilise that assistance. That was his right, but any delay or stress associated with that decision must be attributed to him and, in my view, it is not a matter to be taken into account on sentence.
4. In all the circumstances, I am not satisfied that there was any unreasonable or relevant delay in the proceedings. I note that I have taken into account the period of incarceration during the COVID pandemic, and any delay associated has thus been taken into account in that way.

OTHER SENTENCES

1. Fortunately, I have had the benefit of reading the very recent judgment of Cavanagh J in R v Kelu; R v Millner [2023] NSWSC 1537. At [171], his Honour sets out the cases he has taken into account as comparable cases. I have, likewise, taken those cases into account. I also agree with the observation made by his Honour at [174] that there is no identical case to this one.
2. Unlike the cases of Kelu and Millner, I am not prepared to find that the offender did not have any obvious financial benefit from the commission of the offences. Here, as previously noted, this offender was the main financial beneficiary of both of the developments. Particularly with respect to RHV, he had hoped to own that very substantial development as his personal asset. In my view, it is an inevitable finding that the offender was motivated by financial greed rather than need.

PRE-SENTENCE CUSTODY

1. There was an agreement between the parties as to the periods that the offender had spent in custody prior to the sentence judgment. I am grateful to them for that. The offender has spent three separate periods in custody. 1. 4 April to 12 September 2019 in custody in New Zealand, contesting extradition, 2. 13 September 2019 to 12 April 2022 on remand awaiting trial, and 3. 9 October 2023 until 9 February (today) following the jury's verdict.
2. I note that the Crown faintly submitted that the period that the offender defended extradition should not be taken into account in New Zealand or should not be fully taken into account on sentence, but also conceded that it was a period that was available to be taken into account at the court's discretion.
3. In my view, there is no sufficient basis shown for not taking all three periods into account as pre-sentence custody, and I will take that period fully into account on sentence. It is agreed between the parties that if all of the periods are taken into account, then the starting date for any sentence should be 28 September 2020.
4. In reaching my decision in this matter, I have taken into account all the factors outlined in s 16A Crimes Act 1914 (Cth), without necessarily expressly identifying all of those factors.

ORDERS

1. The offender is convicted of the two offences of conspiracy. Having regard to the seriousness of the offending and taking into account all the subjective factors that I have referred to above, I set the following sentences.
2. I impose a sentence of six years imprisonment for the JKC conspiracy. I impose a sentence of seven years and six months for the RHV conspiracy. The sentence will be accumulated by two years and six months. In effect, the total sentence is one of ten years imprisonment, commencing on 28 September 2020 and ending on 27 September 2030.
3. Under s 19AB of the Crimes Act 1914 (Cth), I impose a single non-parole period for both offences of six years and eight months. In my view, the sentence is appropriate for the seriousness of the offending and the need for the sentence to demonstrate, clearly, general deterrence. It represents the minimum period the offender must spend in custody. That non-parole period will end on 27 May 2027.
4. I recommend that the offender be provided with appropriate psychological treatment whilst in custody. The offender is to be supervised whilst on parole. Such supervision can be terminated at the discretion of Community Corrections. I do not find it necessary to set any other particular conditions on his release to parole.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 April 2024