BETWEEN : ROSS ALFRED BLACKALL AS THE DULY AUTHORISED DELEGATE OF THE CHIEF EXECUTIVE OFFICER OF CUSTOMS

Customs - Breaches of Customs Act 1901 (Cth) - Evasion - Smuggling - False statements - Appropriate penalties to be imposed

Customs Act 1901 (Cth), s 153, s 233, s 233AB, s 234, s 245

Chief Executive Officer of Customs v Coflexip Stena Offshore International SA [2001] WASC 346

Chief Executive Officer of Customs v Owens International Freight (Australia) Pty Ltd [2002] WASC 128; (2002) 50 ATR 229

Chief Executive Officer of Customs v Pavlinovich (2001) 47 ATR 402

Chief Executive Officer of Customs v Sau Fee Mak [2002] WASC 235

Chief Executive Officer of Customs v Tonmill Pty Ltd [2001] WASC 77; (2001) 160 FLR 1

Comptroller-General of Customs v Kingswood Distillery Pty Ltd, unreported; SCt of NSW; 5 December 1997

Goulding v Penello (2000) 43 ATR 179

Trade Practices Commission v Allied Mills Ltd [1981] FCA 142; (1981) 37 ALR 256

Walsh v N & M Gangemi Nominees Pty Ltd [2001] WASC 79

1 This action is a "customs prosecution" brought by the plaintiff (who I shall simply call Customs) against the defendants pursuant to s 245 of the Customs Act 1901 (Cth) and an action to recover unpaid duty pursuant to s 153 of the Customs Act.

2 The action has been listed for final hearing by consent of the parties.

3 The plaintiff's writ of summons seeks declarations and convictions against the defendants in respect of contraventions of s 233(1)(a), s 234(1)(a) and s 234(1)(d) of the Customs Act.

4 In December 2003 the plaintiff and the defendants concluded a settlement agreement to resolve the action in the manner set out in a memorandum of consent orders dated 16 January 2004. A copy of the Settlement Agreement between the parties is before the Court.

5 The Agreement provides that the plaintiff apply to the Court for the orders and declarations sought by the summons and contained in the minute of consent orders filed.

6 The Agreement also provides that the plaintiff agrees to accept from the defendants the sum of $68,633 in full and final satisfaction of the penalty judgment of the Court in this matter, plus outstanding duty of $11,367 and costs fixed at $8000. Total = $88,000.

7 Should the defendants default on the payment of the settlement sum agreed, the plaintiff may execute the judgment awarded in this matter.

8 A customs prosecution has criminal and civil aspects: Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 201 ALR 1.

9 However, it has been generally accepted that a customs prosecution may be settled on a commercial basis without breaching the policy of the Customs Act or the administration of the criminal law or in any way detracting from the discretion of the court with regard to sentencing a person upon conviction in proceedings under the Customs Act: see generally Chief Executive Customs v Corniche Motors Pty Ltd [2003] WASC 244 at [5] and [6] and the authorities there referred to.

10 In negotiating the Settlement Agreement Customs gave consideration to the following:

(2) the extended length of time over which the offences have been committed;

(4) the cost to the plaintiff and the defendants of proceeding to a full trial of all matters;

(5) the early approach by the defendants through their solicitors seeking to resolve the matter;

(6) the full and frank admissions provided thereafter; and

(7) the financial position of the defendants and the ability of them to repay the revenue and a specific deterrent penalty.

11 It now falls to the Court to record convictions against the defendants in respect of each contravention of the Act and to impose a penalty in respect of each contravention, as well as make the other orders to which the parties by their minute of consent orders have agreed.

12 More specifically, the statement of claim seeks declarations and convictions against:

(1) the first defendant (Red Dale) for six offences of smuggling, evasion and making false statements to an officer of Customs in contravention of the Customs Act;

(2) the second defendant (Almonte Diamond) for 22 offences of smuggling, evasion and making false statements to Customs officers in contravention of the Customs Act;

(3) the third defendant (John Wilder) for 28 offences of smuggling, evasion and making false statements to an officer of Customs, and two additional offences of making false statements to an officer of Customs in contravention of the Customs Act; and

(4) the fourth defendant (Frank Frisina) for 22 offences of smuggling, evasion and making false statements to Customs officers in contravention of the Customs Act. (See par 2 of the Agreement).

13 The legislative penalty in respect of each evasion charge is a minimum of two times the amount of duty evaded and a maximum of fives times that amount (s 234(2)(a) of the Act).

(1) The amount of duty evaded by the first defendant was $1852.64. The applicable penalty range is therefore $3705.28 to $9263.20.

(2) The amount of duty evaded by the second defendant was $9515.01. The applicable penalty range is therefore $19,030.02 to $47,575.05.

(3) The amount of duty evaded by the third defendant was $11,367.65. The applicable penalty range is therefore $22,735.30 to $56,838.25.

(4) The amount of duty evaded by the fourth defendant was $9515.01. The applicable penalty range is therefore $19,030.02 to $47,575.05.

14 The legislative penalty in respect of each smuggling charge is a maximum of five times the duty payable (s 233(1AA)(a) and s 233AB(1)(a) of the Act).

(1) The duty payable by the first defendant was $2608.08. The applicable penalty range is therefore $0 to $13,040.40.

(2) The duty payable by the second defendant was $13,937.50. The applicable penalty range is therefore $0 to $69,687.50.

(3) The duty payable by the third defendant was $16,545.58. The applicable penalty range is therefore $0 to $82,727.90.

(4) The duty payable by the fourth defendant was $13,937.50. The applicable penalty range is therefore $0 to $69,687.50.

15 The legislative penalty in respect of each of the false statement charges (excluding the additional two false statements by the third defendant) is a maximum of $5500 per charge, plus two times the duty payable (s 234(2)(c) and s 234(3) of the Act).

(1) The duty payable by the first defendant was $2608.08. The applicable penalty range is therefore $0 to $38,216.16.

(2) The duty payable by the second defendant was $13,937.50. The applicable penalty range is therefore $0 to $148,875.00.

(3) The duty payable by the third defendant was $16,545.58. The applicable penalty range is therefore $0 to $187,091.16.

(4) The duty payable by the fourth defendant was $13,937.50. The applicable penalty range is therefore $0 to $148,875.00.

16 The legislative penalty in respect of each of the two additional false statement charges pleaded against the third defendant is a maximum of $11,000 (s 234(2)(c) and s 234(3) of the Act). The applicable penalty range is therefore $0 to $22,000.

17 The first defendant, Red Dale Holdings Pty Ltd ("Red Dale"), is an Australian registered company of which the third defendant ("Wilder"), is a director, secretary and sole shareholder (by way of personal holdings and Family Trust).

18 The second defendant, Almonte Diamond Pty Ltd ("Almonte"), is an Australian registered company, of which the fourth defendant ("Frisina") and Wilder are the sole shareholders, and Wilder is a director and secretary.

19 Between January 2001 and January 2003, the four named defendants imported diamond cutting blades into Australia in 28 separate shipments. There was one shipment prior to the first shipment the subject of these proceedings where correct values were entered with Customs and there have been subsequent shipments in which correct values were entered. This action relates only to the 28 "offending" shipments occurring during the relevant two year period.

20 In relation to the first defendant (Red Dale), the action relates to the first six of the 28 importations, which occurred between January 2001 and July 2001.

21 In relation to the second and fourth defendants (Almonte and Frisina), the action relates to the subsequent 22 importations, which occurred between July 2001 and January 2003.

22 In relation to the third defendant (Wilder), the action relates to all 28 importations, plus two additional false statements made to customs officers during the audit relating to the importations.

23 For the purposes of each shipment a customs broker was employed to enter the diamond blades with Customs. Entry involved the lodgement of a document known as a "Nature 10 Entry for Home Consumption" which contains information based upon instructions provided to the broker by the defendants as the importers, or by a representative of the importers.

24 The information required and provided for the purposes of entry included the "invoice price" and "customs value" of the blades, upon which the duty and GST owing was calculated.

25 Once paid, the imported blades were cleared and released by Customs.

26 For the purposes of entering the first shipment with Customs, a "commercial invoice" was provided to the customs broker from the overseas supplier, Comet International Inc, dated 18 January 2001 invoicing Red Dale (the first defendant) $2725 for 50 diamond blades.

27 On the basis of the information provided, the customs broker lodged the "Entry for Home Consumption" with Customs, declaring the invoice price to be $2725, on which duty payable was calculated as $93.93. This amount was subsequently paid by Red Dale (the first defendant) and the goods were released by Customs.

28 Documents subsequently seized by the plaintiff in warrant actions in respect of the first shipment included the following:

(1) a second "commercial invoice" identical in terms to the first "commercial invoice" provided to Customs and used for the purpose of calculating duty, except in relation to the invoice price which was $7500 (compared with $2725);

(2) a facsimile from the overseas supplier, "Comet International Inc", stating:

" ... Kindly find attached 2 kinds of my invoices.

The AUD 7,500.00 amount invoice is actual invoice of shipment.

And the AUD 2,725.00 amount invoice is 'substitute' invoice.

So please use the 'AUD 2,725' invoice for your customs clearance, if you want save your 'customs duty' ... "

29 A lengthy analysis of the evidence by Customs, and related investigations, revealed a similar system involving two invoices from the overseas supplier and undervaluations in relation to the 27 subsequent shipments.

30 In relation to each shipment, the defendants received one invoice for the true purchase price of the goods, as well as a second false invoice, identical to the true invoice in all respects, except for the invoice price. In each case, in order to have the shipments entered with Customs and the duty and GST calculated, the relevant customs broker was provided with the false invoice. The true invoice was used for internal book-keeping purposes and payment to the supplier.

31 The investigation also revealed telegraphic transfers from the defendants to the overseas supplier for the true purchase price of the various shipments of imported goods.

32 The duty evaded on each shipment is set out in the schedule of shipments.

33 It can be seen the duty evaded ranged from 42 per cent to 100 per cent of the duty payable, but generally two-thirds of the true duty payable was evaded, resulting from the vast majority of the shipments being declared at approximately one third of their true value.

Additional false statements of the third defendant

34 In August 2002, Red Dale (the first defendant) was randomly selected for a compliance audit by the plaintiff. The selected period for audit was 1 January 2001 to 30 June 2002, during which period the first and third defendants had imported more than $1.2 million worth of various goods and paid more than $19,000 in Customs duty.

35 After providing explanatory information to Mr Wilder about the audit procedure and obtaining his consent to exercise monitoring powers pursuant to the Customs Act, Customs audit officers attended at the premises for the purposes of the audit on 23 and 24 October 2002.

36 On the first day of the audit, Customs officers were told by Mr Wilder before the audit commenced that payments to the overseas supplier for the diamond blades may look odd because the amounts paid exceeded the invoice prices. He told the Customs officers the difference was to cover the cost of purchasing a 25 per cent share in the overseas supplier. He then provided Customs officers with a file containing 52 documents relating to the importation of the diamond blades, including an undated "agreement" apparently signed by the supplier and Mr Wilder evidencing this arrangement. The documents also included the facsimile referred to above from the supplier referring to the dual invoicing. Each of the 52 documents were copied by Customs officers, initialled and dated by them.

37 Customs officers returned to the premises the next day, 24 October 2004, to continue the audit. At that time Mr Wilder referred to the facsimile from the supplier and stated he had sent a reply fax saying he wanted nothing to do with false invoicing. Wilder then said to the Customs officers that they would have seen the facsimile in the file of documents he had given them the day before. Upon returning to the file, Customs officers found a fifty-third document. The document appeared to be a facsimile from Wilder to the overseas supplier stating: "we do not want to use 'substitute invoices' to save on duty as this is illegal. But will activate our agreement to buy 25% of Comet ...". This document had not been in the file, copied and initialled by them, the day before.

38 The statements made and documents provided on 23 and 24 October 2002 in relation to excess payments to the overseas supplier being for the purchase of a share of the overseas supplier were false. The excess payments were for the purpose of purchasing the under-declared blades.

The factors to be considered in the imposition of penalty

39 It is usual to acknowledge the legislative policy underlying the penalty provisions of the Customs Act as explained by Kitto J in L Vogel & Son Pty Ltd v Anderson (1968) 120 CLR 157, at 164:

"The Customs laws represent the judgment of Parliament upon an important aspect of the economic organization of the community, and the object of the penal provisions as to make that judgment as effective as possible."

40 As in other sentencing or penalty imposition processes, a wide variety of factors may be considered relevant to the process of assessing an appropriate penalty under the Customs Act, including the seriousness of the offence, whether or not it is a first offence, the overall course of conduct of an offender, the amount of the customs or excise evaded or duty payable, the conduct of an offender in acknowledging the offences and otherwise co-operating with the authorities in relation to the investigation of the offences, the need for deterrents to ensure vigorous and careful compliance in the future, but also more generally in relation to others in the business of importing and dealing with Customs, as a reminder or warning that due care must be taken in the course of those dealings or significant penalties may be imposed. On penalty, see generally: Lanham v Brake; Van Velsen v Brake; Van Velsen v Dielos (1983) 34 SASR 578; Hayes v Weller (No 2) (1988) 50 SASR 182; L Vogel & Son Pty Ltd v Anderson (supra); Minister of State for Customs and Excise v Aunger Accessories Pty Ltd [1969] SASR 441; Minister of Customs & Excise (Murphy) v HF Trading Co Pty Ltd (1973) 47 ALJR 198, at 199 - 200; Comptroller-General of Customs v Jayakody, unreported; SCt of Vic; 13 December 1993; Comptroller-General of Customs v Wong [1998] NSWSC 711; (1998) 103 A Crim R 491.

41 The plaintiff seeks an appropriate penalty in the circumstances of this case, taking into account, in line with all the authorities on point, the following matters:

(1) the obvious difficulty of Customs in detecting breaches of the Customs laws, and the consequent reliance placed by them on importers to ensure that goods imported into Australia are declared honestly and accurately so that the correct amounts of duty and GST are paid;

(2) the recognised need for deterrence, specifically in relation to the defendants to ensure vigorous and careful compliance in the future, but also more generally in relation to others in the business of importing and dealing with Customs as a reminder or warning that due care must be taken in the course of those dealings, or significant penalties may be imposed; and

(3) the legislative policy embodied in the relevant provisions.

42 The plaintiff recognises that the defendants' conduct does not call for the maximum penalty to be imposed, having regard to:

(1) the early approach of the defendants through their solicitors seeking to resolve the matter with the plaintiff;

(2) the service to the public interest in respect of the costs which have been saved by the admissions made and the settlement agreement negotiated, which otherwise would have been incurred by complicated and lengthy litigation; and

(3) the payment by the defendants, in accordance with the Agreement, of the $11,367 outstanding duty and five instalments of $1597.

Submissions of the defendants on penalty

43 Counsel for the defendants confirmed that the defendants acknowledge the facts outlined above. The defendants each acknowledge the offences committed.

44 Acknowledging the seriousness of the offences in the course of the conscious wrongdoing in this case, counsel for the defendants submits that by reason of the early co-operation of the defendants with customs following the instructions of solicitors on their behalf, the defendants should receive the minimum available penalty.

45 I accept the submissions of the Customs in this case that the maximum penalty need not be imposed on the defendants, for the reasons been given by Customs. Nonetheless, having regard to the conscious wrongdoing of each of the defendants and the attempt by the third defendant to cover up the wrongdoing of the first defendant, more than the minimum penalty is required in a case such as this. In all the circumstances, none of the defendants can be treated as a party which more or less "innocently" or on considered advice adopted a course of action in contravention of the Customs Act.

46 However, fortunately upon receipt of sensible legal advice the defendants appear to have quickly abandoned any artifice about the conduct in which they had engaged. That is to their credit. The Court trusts that they will learn from their mistakes on this occasion and will henceforth conduct their businesses in a manner that meets the requirements of the law.

47 I consider that each defendant should, within the range of available penalties, suffer a penalty significantly less than the maximum but slightly more than the available minimum.

48 Accordingly the following penalties should be imposed.

Penalties imposed on the first defendant

49 The penalties imposed on the first defendant shall be as follows:

(1) for evasion of duty contrary to s 234(2)(a) of the Customs Act, where a minimum of two times the amount of duty evaded and a maximum of five times that amount may be imposed by way of penalty, a penalty of three times the duty of $1852.64 evaded, namely $5557.92;

(2) in respect of the smuggling charge contrary to s 233(1AA)(a) and s 233AB(1)(a), where a legislative penalty on each charge of a maximum of five times the duty payable may be imposed, a duty of two times the duty payable will be imposed, namely, two times $2608.08 being a penalty of $5216.16.

(3) in respect of each false statement charge contrary to s 234(2)(c) and s 234(3) of the Customs Act (excluding the additional two false statements by the third defendant) where a maximum legislative penalty of $5500 per charge plus two times the duty payable of $2608.08 may be imposed, being a total maximum penalty of $38,216.16, the penalty shall be 20 per cent thereof rounded off to the sum of $7643.

Penalties imposed on the second defendant

50 The penalties imposed on the second defendant shall be as follows:

(1) for evasion of duty contrary to s 234(2)(a) of the Customs Act where a minimum of two times the amount of duty evaded and a maximum of five times that amount may be imposed by way of penalty, a penalty of three times the duty of $9515.01 evaded, namely $28,545.03;

(2) in respect of the smuggling charge contrary to s 233(1AA)(a) and s 233AB(1)(a), where a legislative penalty on each charge of a maximum of five times the duty payable may be imposed, a duty of two times the duty payable will be imposed, namely, two times $13,937.50 being a penalty of $27,875.

(3) in respect of each false statement charge contrary to s 234(2)(c) and s 234(3) of the Customs Act (excluding the additional two false statements by the third defendant) where a maximum legislative penalty of $5500 per charge plus two times the duty payable of $13,937.50, being a total maximum penalty of $148,875, may be imposed, the penalty shall be 20 per cent thereof rounded off to the sum of $29,775.

Penalties imposed on the third defendant

51 The penalties imposed on the third defendant shall be as follows:

(1) for evasion of duty contrary to s 234(2)(a) of the Customs Act where a minimum of two times the amount of duty evaded and a maximum of five times that amount may be imposed by way of penalty, a penalty of three times the duty of $11,367.65 amount evaded, namely $34,102.95.

(2) in respect of the smuggling charge contrary to s 233(1AA)(a) and s 233AB(1)(a), where a legislative penalty on each charge of a maximum of five times the duty payable may be imposed, a duty of two times the duty payable will be imposed, namely, two times $16,545.58 being a penalty of $33,091.16

(3) in respect of each false statement charge contrary to s 234(2)(c) and s 234(3) of the Customs Act (excluding the additional two false statements by the third defendant) where a maximum legislative penalty of $5500 per charge plus two times the total duty payable of $16,545.50, being a total maximum penalty of $187,091.16, may be imposed, the penalty shall be 20 per cent thereof rounded off to the sum of $37,418.

(4) the legislative penalty in respect of each of the two additional false statement charges pleaded against the third defendant is a maximum of $11,000 (s 234(2)(c) and s 234(3) of the Customs Act). The applicable penalty range is therefore $0 to $22,000. In the circumstances a penalty of $5500 should be imposed in respect of each false statement charge making a total of $11,000 for those two offences.

Penalties imposed on the fourth defendant

52 The penalties imposed on the fourth defendant shall be as follows:

(1) for evasion of duty contrary to s 234(2)(a) of the Customs Act where a minimum of two times the amount of duty evaded and a maximum of five times that amount may be imposed by way of penalty, a penalty of three times the duty of $9,515.01 amount evaded, namely $28,545.03.

(2) in respect of the smuggling charge contrary to s 233(1AA)(a) and s 233AB(1)(a), where a legislative penalty on each charge of a maximum of five times the duty payable may be imposed, a duty of two times the duty payable will be imposed, namely, two times $13,937.50 being a penalty of $27,875.

(3) in respect of each false statement charge contrary to s 234(2)(c) and s 234(3) of the Customs Act (excluding the additional two false statements by the third defendant) where a maximum legislative penalty of $5500 per charge plus two times the total duty payable of $13,937.50, being a total maximum penalty of $148,875, may be imposed, the penalty shall be 20 per cent thereof rounded off to the sum of $29,775.

53 Thus, the penalties imposed on each of the defendants may be summarised as follows: