When is a custodial sentence warranted for criminal fraud?
In Downey v Ministry of Social Development [2023] NZHC 2589, Mr Downey unsuccessfully appealed a sentence of 20 and a half months’ imprisonment imposed by the District Court on 14 charges of dishonestly using a document.
Mr Downey is the sole director and shareholder of Protective Systems Ltd. Between March and August 2020, he made 19 applications in relation to the government’s COVID-19 wage subsidy scheme in the name of his company, 13 of which were successful. The applications provided details of numerous fictitious employees of the company. At no time did the company have any employees.
Mr Downey fraudulently acquired $196,076 from the wage subsidy scheme, and unsuccessfully attempted to obtain an additional $66,781. Some of the funds were used for legitimate business expenses and to pay contractors who did work for the company, but the majority was spent by Mr Downey personally, including on gambling, fast food, Ubers, adult entertainment, bars and clubs. The full amount was eventually repaid.
Mr Downey argued on appeal that home detention should have been imposed rather than imprisonment, on the grounds that the District Court Judge had insufficiently recognised significant personal mitigating factors, had overly emphasised the importance of denunciation and deterrence, and had dismissed the argument that rehabilitation was best completed in the community.
In terms of the discretion to impose home detention or a short term of imprisonment, the sentencing court must impose the least restrictive outcome that achieves the purposes of sentencing.
The High Court agreed with the District Court that the purposes of deterrence and denunciation were paramount in this case and required a sentence of imprisonment..
This offending was more exploitative than defrauding taxpayer monies from a government scheme in the normal operation of society. Mr Downey’s offending involved repeated dishonesty in relation to a high-trust system designed to help those most in need during an unprecedented time.[5] The Court observed that there will always be those individuals who act contrary to the purposes of such schemes and exploit a terrible situation.[6] Mr Downey’s personal mitigating factors and rehabilitation did not outweigh the importance of deterrence here.
The High Court, in considering the starting point imposed in the District Court, noted that the sentencing approach is the same for fraud against the State as with fraud against individuals or groups, and that it is evident that offending against the State is not victimless. The Court considered that, while the seriousness of fraud offending will invariably be determined by the facts of the case, where it involves abuse of a special scheme, particularly one established to assist people in a time of emergency or crisis, this will be aggravating.
Custodial sentences in criminal fraud prosecutions are relatively rare. This decision provides a useful indication of the kind of fraud offending perpetrated against the State that the courts consider will require such denunciation and deterrence to warrant a custodial sentence. The context of the recent pandemic was critical when considering the seriousness of such offending. It demonstrates that those purposes can outweigh personal mitigating factors that would traditionally favour a sentence other than a jail term.
Article written by Matthew Page, Natasha Ellis and Ben Finn
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