Superior Number Sentencing - fraud - falsification of accounts -
fraudulent conversion - reasons for the sentence given on 2 July 2018
[2018]JRC129
Royal Court
(Samedi)
19 July 2018
|
Before :
|
J. A. Clyde-Smith, Esq., Commissioner, and
Jurats Blampied, Thomas, Pitman, Christensen and Milner
|
The Attorney General
-v-
Richard David Arthur
N. M. C. Santos-Costa, Esq., Crown Advocate.
Advocate D. S. Steenson for the Defendant.
JUDGMENT
THE COMMISSIONER:
1.
On 2nd
July, 2018, the Superior Number of the Royal Court sentenced the defendant to a
total sentence of imprisonment of 7 years and we now set out our reasons.
2.
Some four
weeks before his trial, the defendant pleaded guilty to three counts of fraud, three
counts of fraudulent conversion and four counts of falsification of accounts,
committed over a period of some seven years in his position as managing
director of the accountancy firm known as BDO, which forms part of an
international network of public accounting, tax, consulting and business
advisory firms.
3.
There is
no need for the purpose of this judgment to go into the detail of the frauds;
suffice it to say that the total amount lost by the victims was
£1,927,601. The frauds
involved a trust established by a local resident, a company owned by a French
resident, and a local resident. All
three individuals were elderly clients of BDO, who had placed complete trust in
the defendant. It is, however,
helpful to state that the most serious offences related to the local resident
whose trust was defrauded of some £1,768,601 (counts 2–11 which
covered the frauds and counts 16-19 which covered the false accounting in
relation to those frauds). The
French resident’s company was defrauded of £69,000 (count 14) and the
local resident was defrauded of £90,000 (count 15).
4.
The Court
had victim personal statements from the local resident, his two daughters, who
were the beneficiaries of the trust he established, and the local resident,
which demonstrated the real distress caused by such frauds.
5.
The
defendant became an equity partner in 1989 at the age of 28, and in the 1990s,
estimated his earnings at £400,000 a year. In 1998, he sold his interest in his
trust company for some £4.4 million, so that by any definition, he and
his family were wealthy. However,
this led to an extravagant lifestyle and imprudent investments. He had, for example, invested in an
English company called Solar GB, which was developing LED lighting for high
tech industrial applications, and which was a constant cash drain on the
defendant, its sole source of funding.
It eventually folded. In the
2000s, and for entirely unrelated reasons, the income of the firm reduced and
even though we were told that the defendant was still earning £150,000
per annum, he came under financial strain.
He had a personal overdraft secured over the matrimonial home, which was
continuously at its limit of £600,000, although none of this seemed to
dent his extravagant lifestyle. In
essence, he helped himself to the funds of these three clients in order to meet
his financial obligations and continue that lifestyle.
6.
The
prosecution referred the Court to the review carried out by Whelan on
Sentencing of cases involving professionals in the financial services
sector, and, in particular, referred us to the cases of AG v Bryce Richards
[2005] JRC 138A, AG v Morgan [2006] JRC 176, AG v Smith [2011]
JRC 175, R v Higgs (1986) 8 Cr. App. R. (S.) 440, AG v Lewis,
Christmas and others [2012] JRC 177 (a case we note concerned with
fraudulent inducement to invest) and AG v Garraway [2014] JRC 120.
7.
Sentences
in these cases do not follow a formula based on the amount involved in the
fraud. In AG v Hanley 1993/134
(14th October 1993), the Court quoted the following passage from the
English Court of Appeal case of Higgs (1986) 8 Cr. App. R. (S.) 440 as
follows:-
“One must not be over dazzled
by the total sum involved. That sum
is obviously not the only factor to be considered but it may in many cases
provide a useful guide … One does not proceed by mathematical progression
to add years or months to a sentence in direct proportion to the amount of
money taken until one reaches a very large number of years. But the amount taken cannot be regarded
as irrelevant, nor can it be said that after a certain ceiling of stealing has
been reached, any further stealing should make little or no difference to the
period of the sentence.”
8.
It is well
established that the Court will have regard to the checklist of criteria set
out in the English Court of Appeal decision of R v Barrick (1985) 81 Cr.
App. R. (S.) 78 which is as follows:-
“(i) The quality and degree of trust
reposed in the offender including his rank.
(ii) The period over which the fraud
or the thefts have been perpetrated.
(iii) The use to which the money or property
dishonestly taken was put.
(iv) The effect upon the victim.
(v) The
impact of the offences on the public and public confidence.
(vi) The effect on fellow employees or
partners.
(vii The effect on the offender himself.
(viii) His own history.
(ix) Those matters of mitigation special to
himself such as illness; being placed under great strain by excessive
responsibility or the like, where, as sometimes happens, there has been a long
delay, say over two years, between his being confronted with his dishonesty by
his professional body or the Police and the start of his trial; finally, any
help given by him to the Police.
9.
As stated
in Whelan at page 219, the Jersey Courts have pursued their own policy
as to the quantum of sentence, and have not followed English guidelines in that
respect, a particular factor in this jurisdiction being the need for the
reputation and integrity of financial businesses in the Island to be preserved.
In a narrow based economy, the
potential impact has implications for the community as a whole.
10. The prosecution’s approach was to treat
the sentences for the frauds committed on the three victims consecutively,
because they are distinct and unrelated transactions, so that from a starting
point of 9 years and 6 months for the most serious counts (namely those
involving the local resident), it moved for a total sentence after mitigation
of 6 years’ imprisonment.
11. Both counsel acknowledged that there is little
assistance as to starting points in the case law for this kind of offence. In Attorney General v Morgan, the
Crown took the view (presumably followed by the Court), that offences of this
kind were not susceptible to the starting point approach. In Attorney General v Smith, Attorney
General v Lewis and Attorney General v Garraway, there is no
reference to starting points. In Attorney
General v Speck [2004] JRC 100, a case of fraud by an employee, the Court
said the whole exercise of fixing a starting point was too difficult and
artificial and “Therefore we will continue to do what we
have always done, which is to have regard to the aggravating and mitigating
factors, have regard to the appropriate bracket and where within that bracket
the correct sentence lies.” Crown Advocate Santos-Costa candidly
accepted that the prosecution’s approach had been to fix on a
“finishing” point after mitigation (i.e. 6 years), and work
backwards to a starting point of 9 years and 6 months.
12. Advocate Steenson, for the defendant, submitted
that this was the wrong approach, and that the prosecution starting point of 9
years 6 months had to have some support.
He accepted that in the case of Attorney General v Bryce Richards,
the Court had adopted a starting point of 9 years, imposing a sentence of 7
years following trial, but he submitted that a starting point of 8 years more
easily fitted in with the authorities which had been placed before the
Court. We will come to the starting
point shortly.
13. Furthermore, Advocate Steenson submitted that
the prosecution had moved for consecutive sentences for the three frauds
involving the three victims, in what he described as a contrived exercise to
arrive at the final sentence the prosecution wanted, regardless of principle. In his view, the proper approach was to
have a starting point for the most serious fraud (that involving the local
resident), increase it to reflect the aggravating effect of the additional
offending, discount that for mitigation, and make all of the other counts
concurrent.
14. There is authority for that approach in drugs
cases involving substantial quantities of more than one drug (see Valler v
Attorney General [2002] JLR 383), but no authority for such an approach in
cases involving frauds which are entirely unrelated. In our view, the prosecution had adopted
the correct approach as these were entirely unrelated frauds on different
victims and it was important for them to see a consecutive sentence imposed for
the fraud perpetrated on them. However
the Court would have regard to the totality principle.
15. In terms of mitigation, the defendant is a man
of good character, and we had letters both from him and his wife. He expressed remorse for his actions,
although we felt that he had little remorse for his victims, other than the local
resident, and no remorse for his colleagues. A devastating effect of imprisonment upon
the defendant will be his separation from his family, and in particular, his
daughters. As noted in Whelan at page 240, cases of this kind
invariably involve not just a loss of career and professional status, but cause
severe damage to family life.
16. We were told that a settlement had been reached
for the compensation of the trust belonging to the local resident out of the
defendant’s half share of the sale of the matrimonial home, and that
other sums in compensation had been paid, we assume by BDO or its
insurers. The defendant had been
left with no assets, although his wife had been able to re-house the family out
of her half share of the sale proceeds of the matrimonial home.
17. The defendant pleaded guilty and in its
negotiations over the defendant’s pleas, the prosecution had agreed to
move for a full one third reduction for the defendant’s guilty pleas,
notwithstanding the lateness of those pleas and this, of course, without
prejudice to the discretion of the Court to decide how much of a discount to
give. The agreement reached had
enabled a six week trial to be avoided, and in all the circumstances, we
decided to allow that full one third reduction.
18. There were two particular points of mitigation
which the prosecution had taken into account, insufficiently in the view of the
defence:-
(i)
The
defendant had been arrested and charged on 20th May, 2015, so there
had been a substantial delay before the trial which was due to take place in
May of this year. Crown Advocate
Santos-Costa accepted that some of these delays were attributable to the
prosecution (for example, changes in prosecuting counsel either at its volition
or imposed by the Court), but we were not given a full procedural breakdown by
either counsel, enabling the Court to get a better understanding of the causes
of the delay; suffice it to say that we accepted that there had been substantial
delay, which should be taken into account in mitigation.
(ii) The defendant had given evidence for the
prosecution against his co-accused, Alaric Karl Coombs, who had been jointly
charged with him in relation to the fraud against the French resident’s
company (count 14), which involved £69,000. The trial of Mr Coombs had taken place
this June, and notwithstanding the defendant’s evidence, Mr Coombs was
acquitted by the jury unanimously on 14th June 2018. Advocate Steenson argued that this
assistance justified a very substantial reduction of 50% of the overall
sentence against the defendant, and he relied in this respect on the policy of
the Court to allow substantial reductions of sentences in drugs cases. That policy was referred to recently in
the case of Attorney General v Simon [2018] JRC 076A, but as that case
makes clear, this policy has been adopted by the Court “in
order to assist in the fight against those who traffic in drugs.” There was no such policy in relation to
cases of fraud. We accept, of
course, that it is a point in the defendant’s favour that he had assisted
the prosecution in this way, although we note it was assistance in relation to
this one count, the least serious of those involving the defendant. We determined to take this mitigation
into account in relation to the sentence imposed on the defendant under Count
14.
Decision
19. Turning to the criteria in Barrick, it
is difficult to think of circumstances in which there could be a greater
quality and degree of trust than that which was reposed in the defendant. Reference is made in Barrick to
“rank”.
Looking at Whelan, frauds committed by professionals within the
financial services sector were perpetrated in the main by trust and company
administrators, but the defendant was the managing director of BDO, a firm with
an international network, and it must have been unthinkable to the victims that
such a man in such a position could commit such offences.
20. The frauds were committed over seven years, and
the money was used to fund the defendant’s personal investments and
maintain his extravagant lifestyle.
The frauds were committed at a time when he was still earning some
£150,000 per annum. We have
already referred to the impact upon the victims, which was profound.
21. The statements from the local resident’s
daughters show clearly how their confidence in the Island’s financial
services sector has been affected.
Quoting from one of them:-
“My trust in the legal
and financial institutions in Jersey is zero …”
The defendant’s conduct can only have
brought discredit upon the Island’s financial centre, and using the
wording in Whelan at page 209 it
is undoubtedly of paramount importance that the reputation and integrity of the
financial business on this Island should be preserved and its reputation remain
untarnished.
22. The next criterion is the effect on fellow
employees or partners of frauds committed by their Managing Director. Counts 2 and 4, for example, involve the
defendant in making false representations to two of his colleagues in BDO,
whose signatures he required to perpetrate the frauds involved and who were
therefore unwittingly caught up in criminal activity at the instigation of
their own Managing Director. We
have no impact statements from those involved at BDO, but it is not
unreasonable to suppose that the discovery of these frauds, the process of the
defendant’s suspension as Managing Director, and the various internal and
external investigations that took place, would have had a serious impact upon
his colleagues. The defendant makes
no reference to them in his letter to us.
23. The remaining criteria relate to the defendant
himself and mitigation applicable to him to be taken into account after
determining the starting point.
24. Despite the lack of assistance in case law on
starting points, we took the view that we should adopt the starting point
approach, in particular because it will provide greater clarity to the
defendant (and on any appeal) as to how the Court has arrived at its sentence.
25. One can, of course, attempt to work backwards
from the sentences that have been imposed by the Court in the past where no
reference is made to the starting point, to try to ascertain approximately what
the starting point would have been in those cases, but we found assistance in
the case of Attorney General v Bryce Richards. There, a trust and company administrator
had defrauded a trust holding property valued at £2.5 million (it was not
clear from the case note whether all of that was defrauded), over a period of
18 months, a trust of which she was intended to be the ultimate
beneficiary. In effect, she
advanced her interest so that she benefited before the death of the settlor’s
widow. The prosecution moved for a
starting point of 10 years, reduced by the Court, presided over by Sir Richard
Tucker, Commissioner, to 9 years.
26. In our view, the frauds involving the local
resident were more serious for all of the reasons set out above, and we
determined that 10 years was the appropriate starting point.
27. Taking count 2 (we considered counts 2 and 4 to
be of equal seriousness) we deducted one third from the starting point of 10
years to take into account the defendant’s guilty plea, reducing the
sentence to 6 years and 8 months. We
then further reduced the sentence to 5 years 7 months, to take into account the
delay and the other mitigation available to the defendant.
28. In relation to the French resident (count 14),
we took a starting point of 6 years, reduced by one third for the
defendant’s guilty plea to 4 years.
We then deducted 9 months for the delay and other mitigation available
to the defendant, bringing the sentence down to 3 years and 3 months, but we
then reduced that by a further 1 year 3 months, to take into account the
assistance he gave the prosecution in the case against Mr Coombs, leading to a
total of 2 years’ imprisonment.
29. Finally, in relation to the local resident,
(count 15), we again took a starting point of 6 years and reduced that by one
third to take into account the defendant’s guilty plea, and a further 9
months to take into account the delay and other mitigation available to the
defendant, resulting in a total sentence of 3 years and 3 months.
30. Taking the sentences in respect of each of the
three frauds consecutively would have resulted in a sentence of 10 years and 10
months, which applying the totality principle, we regarded as too high. In the judgment of the Court, the
appropriate total sentence, to reflect all of the criminality here and all of
the mitigation available to the defendant, was 7 years.
31. There were a number of ways in which the
individual sentences could be adjusted to arrive at 7 years and we determined
to achieve that by reducing the sentence for count 2 to 5 years, and by making
count 15 concurrent.
32. As a consequence, the defendant was sentenced
as follows:-
Count 2 –
5 years’ imprisonment
Count 4 –
5 years’ imprisonment (concurrent)
Count 7 –
4 years’ imprisonment (concurrent)
Count 11 –
3 years’ imprisonment (concurrent)
Count 14 –
2 years’ imprisonment (consecutive)
Count 15 –
3 years 3 months’ imprisonment (concurrent)
Count 16 –
3 years’ imprisonment (concurrent)
Count 17 –
3 years’ imprisonment (concurrent)
Count 18 –
3 years’ imprisonment (concurrent)
Count 19 –
3 years’ imprisonment (concurrent)
Total sentence:
7 years’ imprisonment.
33. Finally, the defendant was disqualified from
participation in corporate management or directorship for a period of 12 years,
pursuant to Article 78(1)(a), (b) and (c) of the Companies (Jersey) Law 1991
as amended. Issues in relation
to compensation and confiscation under the Proceeds of Crime (Jersey) Law
1991 were left over for a date to be fixed.
Authorities
Whelan on Aspects of Sentencing in
the Superior Court of Jersey.
AG
v Bryce Richards [2005] JRC 138A.
AG
v Morgan [2006] JRC 176.
AG
v Smith [2011] JRC 175.
R v Higgs (1986) 8 Cr. App. R. (S.)
440.
AG
v Lewis, Christmas and others [2012] JRC 177.
AG
v Garraway [2014] JRC 120.
AG
v Hanley 1993/134.
R v Barrick (1985) 81 Cr. App. R.
(S.) 78.
AG
v Speck [2004] JRC 100.
Valler
v AG [2002] JLR 383.
Attorney
General v Simon [2018] JRC 076A.
Companies (Jersey) Law 1991 as
amended.
Proceeds of Crime (Jersey) Law 1991.