2019 QCCQ 3705, 2019 QCCQ 3705

Accurso c. R. 2019 QCCQ 3705 COURT OF QUEBEC CANADA PROVINCE OF QUÉBEC CITY OF MONTRÉAL "Criminal and penal division" N 0s : 500-73-003792-120 500-73-003991-136 500-73-004096-141 DATE : June 18, 2019 BEFORE THE HONOURABLE LORI RENÉE WEITZMAN, J.C.Q. ANTONIO ACCURSO and FRANCESCO BRUNO and FRANCESCO FIORINO and AMERICO COMPARELLI (Applicants - Accused) v.

THE QUEEN (Prosecutor - Respondent) DECISION ON FOUR APPLICATIONS TO EXCLUDE EVIDENCE OBTAINED PURSUANT TO JUDICIAL AUTHORISATIONS OR TO STAY THE PROCEEDINGS [1] Sections 7 , 8 , 10 , 24(1) and 24(2) of the Canadian Charter of Rights and Freedoms TABLE OF CONTENTS I. THE CONTEXT...................................................................................................................... 4 II. THE FACTS SURROUNDING THE AUDIT AND LEADING TO THE CHARGES.................................................................................................................... 6 III.

THE QUESTIONS AT ISSUE............................................................................................ 10 IV. ANALYSIS........................................................................................................................... 10 1. WERE THE APPLICANTS’ CHARTER RIGHTS VIOLATED WHEN SEARCH WARRANTS, PRODUCTION ORDERS AND WIRETAP WARRANT WERE OBTAINED BASED LARGELY ON THE INFORMATION GATHERED IN THE COURSE OF THE AUDIT? ...... ( “THE JARVIS BREACH”).......................................................................................... 10 (

a) Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?................................................................................................................................. 13 i. Long-standing rumours about corruption and previous requests for investigations.......................................................................................................................... 14 ii. The details in the anonymous tip............................................................... 16 iii.

Other indications that issues of corruption were known and discussed among the higher-ups at the CRA.................................................................................. 17 (

b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?......................................................................................... 19

i. Conduct of Paquette..................................................................................... 20 ii. Accessing files............................................................................................... 20 iii. Start date of the audit.................................................................................... 21 iv. Bad faith/ hidden agenda............................................................................ 21 v. An exaggerated T-134.................................................................................. 22 vi.

Request for discretion................................................................................... 23 vii. Curious annotations .................................................................................... 23 viii. Requirement powers used........................................................................... 24 (

c) Had the auditors transferred their files and materials to the investigators? 24 (

d) Was the conduct of the auditors such that they were effectively acting as agents for the investigators?........................................................................................................ 26 (

e) Does it appear that the investigators intended to use the auditors as their agents in the collection of evidence?................................................................................. 26 (

f) Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer’s means rea , is the evidence relevant only to the taxpayer’s penal liability?.................................................................................... 27 (

g) Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?................................................................................................................................. 28 i. Fiorino suspected a criminal investigation was underway.................... 28 ii. Actions of certain CRA agents.................................................................... 29 iii. Proximity between the SEP and CIP......................................................... 29 iv.

Comments by CRA agents describing the nature of the inquiry.......... 31 2. ARE THE WARRANTS BASED ON FALSEHOODS AND / OR MISREPRESENTATIONS THAT SHOULD BE REMOVED FROM THE ITOS?.................................................................................................................... 32 3. DOES THE EVIDENCE DISCLOSE OVERARCHING BAD FAITH AND SYSTEMIC FAILINGS THAT COMBINE TO BREACH THE APPLICANTS’ CHARTER

SECTION 7 AND 11D) RIGHTS, WARRANTING A STAY OF PROCEEDINGS OR THE EXCLUSION OF EVIDENCE PURSUANT TO SECTION 24(1)?............................................................................ 35

A) Unlawful sharing of information................................................................... 36 i. The authorities’ lack of respect for the prohibition against disclosing confidential taxpayer information (section 241 of the ITA )............................................. 36 ii. Protocols / Memoranda of Understanding (“MOU”) not followed ............. 47

B) Compelled information obtained during the disciplinary investigation.. 50 GLOSSARY OF TERMS............................................................................................................. 55 I. THE CONTEXT [ 1 ] In 2008, the RCMP launched an investigation codenamed “Projet Coche” into possible fraud, bribery and breach of trust involving employees of the Canada Revenue Agency ( CRA ). This large-scale investigation led to multiple criminal accusations. [ 2 ] The following is a brief overview of the charges in the three files at issue and a

summary of the applications before the Court: - the Plan of Action file (500-73-003792-120) concerns Applicants Francesco Bruno, Francesco Fiorino, and Antonio Accurso and stems from a document found in the office of Fiorino [2] (Bruno’s accountant). It is alleged that a CRA employee, Adriano Furgiuele, drafted this document as a 17-step plan to allow Bruno's companies (B.T. Céramiques ( BT) and 3703436 Canada Inc.) to elude the payment of taxes and to cover any traces of illicit activity involving corrupt CRA employees.

They are charged with fraud, forgery, breach of trust of a public official and conspiracy, between 2007 and 2009; - the Infiltration file (500-73-003991-136) concerns Applicant Fiorino and originally targeted five accused. The charges against Fiorino stem from his involvement as the accountant for five different companies in the context of alleged fraudulent schemes and bribery of CRA agents between.

He is charged with multiple counts of fraud, breach of trust and bribery between 2000 and 2008; - the Delvex file (500-73-004096-141) concerns Applicants Bruno and Americo Comparelli and deals with alleged fraudulent tax credits claimed by Delvex for scientific research and experimental development (“R&D”). It is alleged that the president of Delvex, Marcello Furgiuele, acted in concert with several “phantom” shareholders, namely Bruno and CRA employees Comparelli, Adriano Furgiuele and Antonio Girardi.

They are charged with breach of trust of a public official, conspiracy and bribery between 2005 and 2009. [ 3 ] The Applicants raise issues that are the subject of the Supreme Court of Canada’s decision in R v. Jarvis . [3] In that case, the Court dealt with the distinction between a fiscal audit and a penal investigation. The distinction is a crucial one, given the wide powers of investigation granted to tax auditors. During a tax audit, taxpayers must collaborate with fiscal authorities and are obliged to provide any and all documents and information requested in furtherance of the audit.

In contrast, the suspect in a criminal investigation benefits from the “full panoply” of Charter protections. [4] Thus, it is impermissible for auditors to use their coercive powers to compel oral statements or written production for the purpose of advancing a criminal investigation. [ 4 ] Each of the Applicants seeks the exclusion of the evidence obtained following several searches.

Although these searches were conducted pursuant to judicial authorisations, [5] the Applicants claim that the warrants should be invalidated as every Information to Obtain ( ITO ) relied almost exclusively on illegally obtained evidence gathered through the unlawful use of the CRA’s audit powers, in breach of the Jarvis principles.

More specifically, the Applicants allege that a tax audit of Bruno and BT was a pretext to gather information for a criminal investigation or at the very least, evolved into a criminal investigation. [ 5 ] In addition to the exclusion of evidence obtained pursuant to the Jarvis breach, the Applicants request the excision of certain sections of the ITO allegedly containing falsehoods and misrepresentations.

These excisions, they claim, will similarly lead to invalidating the warrants as based on insufficient information to authorise the searches. [ 6 ] The Applicants submit that the exclusion of evidence is further warranted by numerous instances of inappropriate and unlawful behaviour by the authorities, the combined effect of which breaches the principles of fundamental justice. Fiorino argues that in his case these breaches warrant a stay of proceedings. [6] [ 7 ] The Prosecution contests the Applications and raises issues of standing to claim the Charter remedies sought.

Although they recognise that each Applicant has a reasonable expectation of privacy in some of the items seized, places searched or conversations intercepted, they submit that the standing issue must be examined in relation to each warrant separately. In addition, even where an Applicant has standing to contest a particular seizure, the question arises as to whether he can ask for a remedy based on the breach of a third-party’s Charter rights. [ 8 ] The Applicants submit that they are entitled to such a remedy applying the reasoning of the Supreme Court’s trilogy in R v. Grant , [7] R. v . Plant [8] and R. v .

Wiley . [9] They claim that any and all parts of every ITO referring to information or documents originally obtained in violation of Bruno’s Charter rights (i.e. the alleged Jarvis breach) must be removed from every ITO relying on such information. They argue that the integrity of the administration of justice would be harmed if courts were to implicitly condone third-party breaches by refusing to grant a remedy for violation of Charter rights, based on a narrow view of standing. [10] II.

THE FACTS SURROUNDING THE AUDIT AND LEADING TO THE CHARGES [ 9 ] In a related case, Bruno presented a similar Jarvis -type application. In that matter, he and others were charged with multiple counts of tax fraud under the Tax Administration Act [11] and the Excise Tax Act . [12] In that trial, the same search warrants contested here were at issue. The Court of Quebec held in Agence du revenu du Québec c . B.T. Céramiques inc . [13] ( ARQ c . BT) that the Jarvis principles were breached and the evidence obtained pursuant to the search warrants was excluded.

That decision was overturned by the Superior Court , [14] which judgement is presently under appeal following leave granted by the Quebec Court of Appeal. [15]

[ 10 ] The parties have agreed that the evidence presented in the Court of Quebec before Larochelle, J. be filed as evidence in the present matter. [16] In addition, they have added some nuances and corrections as well as some additional evidence. Furthermore, the involvement of the RCMP is new to this matter, as the previous hearing focused only on the conduct of CRA and Revenu Québec agents. [ 11 ] As explained in the Court of Quebec decision, the catalyst for the inquiry into the affairs of Bruno and his company, BT, was an anonymous tip obtained by Jean-Pierre Paquette.

Paquette was a CRA agent seconded to “Projet Colisée”, a joint task force with the RCMP, investigating organized crime. [17] Paquette’s role in Projet Colisée was to analyse information gathered by various police forces, through wiretaps, surveillance and police databanks, in order to uncover possible unpaid taxes. Information regarding taxpayers who were flagged for an audit was forwarded by Paquette to his team leader at the Special Enforcement Program ( SEP , in French, PSE).

At that time, Paquette worked in the offices of the Combined Forces Special Enforcement Unit ( CFSEU , in French, UMECO) and he was responsible for coordinating the activities of the CRA with the other police forces involved in Projet Colisée. [ 12 ] The SEP conducted civil audits of persons and companies suspected of deriving taxable income from criminal activities. The Criminal Investigation Program ( CIP in French, PEC) investigated tax evasion.

The SEP and the CIP were both branches of the “Section des enquêtes spéciales” ( SES ), and they worked side by side, despite their very different mandates, one civil and the other criminal. [ 13 ] The tip obtained by Paquette in March 2006, read in part as follows: […] Celui-ci [Bruno] est le propriétaire de la compagnie BT Céramiques et il est impliqué dans l'évasion fiscale avec son comptable Fiorino, il est en étroite relation avec un grand patron d'impôt Canada sur qui il peut compter pour les vérifications TPS et TVQ, car le dossier lui revient à lui pour le dernier mot.

Il peut ainsi passer l'éponge en échange d'argent. [18] [ 14 ] The evidence disclosed that the high-ranking CRA agent referred to in the tip as “le grand patron” was a CRA team leader named Madan Kehar. [ 15 ] Following his discovery of the tip, Paquette consulted CRA databanks to gather information, accessing the files of both Bruno and BT. Paquette kept this and his further inquiries in a file named “Corruption”. His searches disclosed that Nick Iammarrone, a CRA auditor, had been overseeing the tax returns of Bruno and BT for 2 or 3 years.

Paquette followed up with Iammarrone to inquire if anyone had tried to interfere in his audit. Iammarrone indicated that no one had, but told Paquette that he suspected foul play by Kehar. [ 16 ] Soon after, in March or April 2006, Paquette informed his team leader, Louis Gagnon, [19] about what he had uncovered, and suggested that an audit be launched.

Gagnon declined to pursue the matter and instructed Paquette to put it aside. [ 17 ] In September 2006, Ghislain Godard [20] replaced Gagnon as head of the CRA for Projet Colisée, and he was apprised of the concerns within the CRA regarding the integrity of their members and, in particular, rumours circulating regarding Kehar. [ 18 ] At the end of February 2007, Godard was also informed by Paquette of the anonymous tip he had uncovered a year before. This led to a meeting with Paquette, Godard and André St-Amand (the new director of the SES), [21] on March 28, 2007, to discuss the corruption issues.

They provided St-Amand with Paquette’s “corruption” file. St-Amand instructed Paquette to cease inquiring into the matter and that same day he brought the information to Carole Gouin, the CRA director of the Montreal Tax Service office ( TSO ). [ 19 ] St-Amand recommended to Gouin that an audit of Bruno and BT be launched.

Four specific concerns were identified in Bruno’s file: (1) a net worth assessment prepared during a previous tax audit of BT; (2) a minor adjustment made following an earlier audit; (3) a CRA agent intimidated during the course of an earlier audit; (4) the existence of an anonymous tip indicating that a high-ranking CRA agent could influence the outcome of the audit. [22] [ 20 ] At the end of March 2007, it was decided that an audit of Bruno and BT would be launched for the 2004-2005 taxation years.

St- Amand explained that his goal was to confirm the suspicions they had and to verify if there had been some type of settlement of convenience in the file. He also noted other concerns in the file, namely certain irregularities with an earlier audit conducted by Iammarrone, as well as unauthorised access to the CRA databanks, which he discussed with Godard (the head of the CRA for Projet Colisée). [23] [ 21 ] The evidence establishes that the authorities involved were aware that the audit into Bruno and BT could involve sensitive issues for the CRA.

St-Amand highlighted the need for discretion and instructed that the word “corruption” be removed from all of the electronic files. He also met with team leaders of the SEP [24] and informed them of the concerns regarding possible corruption at the CRA, as well as the possible link between Kehar and Bruno. [25] However, St-Amand states that he had no intention of proceeding with a criminal investigation regarding any CRA employees, nor did he intend to send the file to the CIP.

The file was instead sent to the SEP, which he felt was better suited to this matter than the regular audit department. [26] [ 22 ] St-Amand requested that the SEP appoint seasoned auditors to conduct the audit.

The two auditors chosen, Proulx and Talbot, began the audit in April 2007. [27] [ 23 ] Almost a year later, on March 25, 2008, in view of the auditors’ conclusion of a lack of cooperation from Bruno and his representative, Fiorino, as well as a list of irregularities noted, the auditors completed a “T-134” form, [28] requesting that the CIP launch a criminal investigation. [ 24 ] On April 7, 2008, auditors Proulx and Talbot with their team leader, France Côté, met with David Cavanagh, leader of the CIP and André Faribault, a CIP investigator.

They discussed the need to proceed quickly and discreetly, given the sensitive nature of the information concerning the CRA. [ 25 ] Faribault was put in charge of the criminal investigation. With the evidence provided to him from the auditors, as well as his own verifications, Faribault completed his ITO in support of the searches on April 28, 2008. [ 26 ] The first wave of searches was conducted on May 6, 2008.

[ 27 ] In the course of the searches, the police seized several original and highly confidential documents belonging to the CRA, prompting Patrice Chouinard, the new director of the Montreal TSO, to request an internal investigation the next day. The investigation named “Projet Carrera”, led by Pierre Léveillé, inquired into the leak of the confidential documents. A final report of Projet Carrera was completed on August 24 2009. Léveillé had also begun a separate internal investigation in June 2007 (one year before Projet Carrera) which focused on CRA agents’ unauthorised accesses to taxpayer files.

This investigation led to a final report on July 17, 2009. [ 28 ] Also seized during the May 6, 2008 searches, at Fiorino’s office, was a document entitled “the plan of action”. This document outlines a 17-step strategy designed to evade the payment of taxes and to deceive CRA auditors. [ 29 ] On September 12, 2008, Chouinard provided the RCMP with evidence of a large scale problem of corruption within the CRA.

He included two binders of documents [29] including evidence found during the first wave of searches in May 2008; reports from an investigation concluded in 2003, dealing with suspected wrongdoing and corruption of CRA agents in the Montreal and Laval TSOs (named Projet Cogagne); the anonymous tip; and wiretap conversations from Projet Colisée. [ 30 ] The RCMP also met with Léveillé, CRA internal affairs investigator, in October 2008 to have him explain some of the documents that Chouinard had given them.

Léveillé also informed them about certain CRA agents he was investigating in his ongoing disciplinary investigation. [30] [ 31 ] A second wave of searches was conducted on April 7, 2009. The Projet Coche charges arise as a result of these searches, as well as several production orders obtained, combined with the material originally seized by the CRA, and re-seized by the RCMP in 2010 and 2011 and further RCMP warrants obtained in 2011. [31] III. THE QUESTIONS AT ISSUE 1.

Were the Applicants' Charter rights violated when search warrants, PRODUCTION orders and a wiretap warrant were obtained based largely on the information gathered in the course of the AUDIT? 2. If not, are the warrants based on falsehoods and/ or misrepresentations that should BE REMOVED from the ITO? 3. Does the evidence disclose overarching bad faith and systemic failings that combined to breach the Applicants’

section 7 rights, warranting a stay of proceedings or the exclusion of evidence? IV. ANALYSIS 1.

Were the Applicants' Charter RIGHTS violated when search warrants, production orders and a wiretap warrant were obtained based largely on the information gathered in the course of THE AUDIT? (“the Jarvis breach”) [ 32 ] The Applicants allege that from the outset, in 2007, the auditors verifying Bruno and his companies were truly conducting an investigation into criminal liability related to corruption and tax fraud and merely using the audit as a pretext to gather information for the CRA investigative branch and the RCMP.

Alternatively, they argue that if the audit was initially commenced legitimately, the “Rubicon was crossed” [32] when several red flags appeared, changing the nature of the audit into a criminal investigation. They argue that from that point, the evidence gathered by the auditors was obtained in violation of the Charter , and must therefore be removed from the ITO provided in support of the warrants. [ 33 ] In the absence of evidence of a clear decision by the auditors to pursue a criminal investigation (and there is no such evidence here), the Court must determine the predominant purpose of their inquiry.

This determination requires a detailed review of the facts known and the actions taken, by the authorities involved. Their conduct must be scrutinized to verify that the audit powers were not surreptitiously, and by implication, illegally, used to pursue a criminal investigation.

As stated in Jarvis , auditors must relinquish their authority to use their inspection and requirement powers as soon as the predominant purpose of the inquiry is the determination of penal liability. [33] [ 34 ] Where the evidence establishes, on a preponderance of probability, that the predominant purpose of an inquiry was the pursuit of a criminal investigation, then any evidence obtained through the audit powers under the Income Tax Act [34] ( ITA ) cannot be used against the taxpayer in the course of a criminal prosecution. [ 35 ] In analysing the conduct of the auditors, it should be stated at the outset that it is perfectly appropriate for a civil audit and a criminal investigation to proceed as parallel inquiries. [35] As well, the law grants tax auditors wide reign to conduct their fiscal audits. [36] The question at issue will be whether those broad audit powers were used in furtherance of an inquiry into criminal liability. [ 36 ] Furthermore, as underscored by the Superior Court in R. v .

BT Céramiques Inc. [37] ( R. v. BT ), the determination of the predominant purpose of the inquiry at issue must be focused on the particular taxpayer targeted by the audit / investigation. This issue is not informed by an analysis of other investigations, unrelated to the particular taxpayer and his or her constitutional rights: […] l'arrêt Jarvis porte sur le respect des droits constitutionnels du contribuable concerné , en fonction de l'objet prédominant d'une enquête menée à son endroit.

Il n'oppose pas une vérification de conformité des affaires fiscales de ce contribuable et tout autre examen ou enquête qui ne le vise pas et qui ne met pas ses droits constitutionnels en jeu. [38] (Emphasis added) [ 37 ] In Jarvis, the Supreme Court sets out seven questions to be examined in determining the predominant purpose of an inquiry. The issue must be determined after an assessment of the totality of the circumstances and “no one factor is necessarily determinative in and of itself.” [39] [ 38 ] The Court will address each question in regards to the CRA inquiry at issue.

In reviewing each factor, the analysis of the

Superior Court in R. v. BT [40] is not only convincing, it also binds this Court as a matter of authoritative precedent or stare decisis. [41] Nevertheless, where the present facts differ in a material way from those relied upon by in R. v. BT, a different conclusion may lie. [ 39 ] Although Jarvis remains the leading case dealing with the limits of audit powers once a criminal investigation is underway, it bears noting that the Court concluded that the auditor had not breached the rules. The auditor had convincing evidence that Mr. Jarvis was intentionally understating his income in his tax filings.

The CRA had received a tip that Mr. Jarvis had sold his wife's art for a significant profit, which was confirmed in large part by the auditor. When the auditor met with Mr. Jarvis, she did not mention to him the information she already knew. The auditor requested that Mr. Jarvis provide documents which confirmed that he had grossly under- reported his income. The matter was then sent for a criminal investigation. The Court found that the auditor had evidence that Jarvis failed to report a significant amount of income and that in order to fully assess civil liability, the auditor was entitled to interview Mr.

Jarvis to determine if he had a reasonable explanation for not reporting this income. [ 40 ] The Supreme Court concluded that although the auditor’s conduct was not praiseworthy, the record did not support a finding that she obtained information while conducting an investigation, the predominant purpose of which was a determination of Mr. Jarvis’ penal liability. [ 41 ] The seven questions in Jarvis are set out below. They will be addressed in turn. (

a) Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made? (

b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation? (

c) Had the auditors transferred their files and materials to the investigators? (

d) Was the conduct of the auditors such that they were effectively acting as agents for the investigators? (

e) Does it appear that the investigators intended to use the auditors as their agents in the collection of evidence? (

f) Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer's mens rea , is the evidence relevant only to the taxpayer's penal liability? (

g) Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation? (

a) Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have b een made? [ 42 ] In examining this question, it is fundamental not to equate mere suspicion of criminal wrongdoing with reasonable grounds to believe that a crime has been committed. An auditor’s suspicion prior to or in the course of his audit does not preclude the continuation of an investigation for the purposes of the audit . As was underlined in the Superior Court’s decision in R. v .

BT : [42] 76 C'est parce que la Loi constitue essentiellement une mesure de réglementation de nature administrative du processus de perception des impôts, fondée principalement sur l'autocotisation et l'autodéclaration, que le simple soupçon qu'une infraction a pu être commise ne suffit pas à faire obstacle aux larges pouvoirs de l'ARC de vérifier la "franchise" du contribuable. [ 43 ] This principle was established in Jarvis : [43] 90 All the more, the test cannot be set at the level of mere suspicion that an offence has occurred.

Auditors may, during the course of their inspections, suspect all manner of taxpayer wrongdoing, but it certainly cannot be the case that, from the moment such suspicion is formed, an investigation has begun. On what evidence could investigators ever obtain a search warrant if the whiff of suspicion were enough to freeze auditorial fact-finding?

The state interest in prosecuting those who wilfully evade their taxes is of great importance, and we should be careful to avoid rendering nugatory the state's ability to investigate and obtain evidence of these offences. [ 44 ] Indeed, even a finding that the auditors had reasonable grounds to believe that an offence had been committed does not automatically lead to a conclusion that the inquiry was predominantly a criminal investigation.

This was also made clear in Jarvis : 89 To begin with, the mere existence of reasonable grounds that an offence may have occurred is by itself insufficient to support the conclusion that the predominant purpose of an inquiry is the determination of penal liability. Even where reasonable grounds to suspect an offence exist, it will not always be true that the predominant purpose of an inquiry is the determination of penal liability.

In this regard, courts must guard against creating procedural shackles on regulatory officials; it would be undesirable to "force the regulatory hand" by removing the possibility of seeking the lesser administrative penalties on every occasion in which reasonable grounds existed of more culpable conduct. [ 45 ] The Applicants submit that as soon as Paquette found the anonymous tip, [44] the CRA had reasonable grounds, if not to lay charges, then at the very least to start a criminal investigation. Consequently, they argue, the information gathered by the auditors was obtained in breach of their Charter rights.

These arguments can be divided into 3 categories. i. Long-standing rumours about corruption and previous requests for investigations [ 46 ] The Applicants emphasise the fact that the gist of the anonymous tip, indicating corruption within the CRA, was not new: it reflected well-known concerns of this nature. They submit that the tip disclosed a sufficient basis to start a criminal investigation of Bruno. The Court disagrees. [ 47 ] A review of the chronology of concerns raised about possible corruption at the CRA confirms that suspicions came up

repeatedly over the years, but they fell short of providing evidence to launch a criminal investigation. [ 48 ] As far back as 2000, a joint investigation between the CRA and the RCMP dealt with suspected collusion between taxpayers and corrupt CRA agents accepting bribes and agents not respecting their Code of integrity and professional conduct (Projet Cogagne). [ 49 ] The investigation concluded in 2003 without sufficient evidence to lay charges, but it did not quell the concerns of problems within the Montreal and Laval TSOs.

Both the interim and the final reports of Cogagne were included in the material collected by Chouinard for the RCMP when he brought them his formal complaint in June 2008, spawning “projet Coche.” [45] [ 50 ] The Applicants allege that the current Projet Coche investigation is the continuation of the Cogagne investigation. However, there is no evidence that the Cogagne investigation continued through the years, nor that it was reopened, five years later, with Projet Coche.

According to testimony of the lead investigator in the Projet Coche matter, Pierre Breton, none of the information contained in the Cogagne investigation was used in any way in the Projet Coche investigation. [46] [ 51 ] After the Cogagne investigation was concluded, further concerns with corruption were documented in correspondence between the CRA and the RCMP. In February 2006, Jocelyn L’Heureux, RCMP Major Fraud team leader, had a meeting at the office of the Auditor General in Ottawa with Jocelyn Malo and Josée Labelle of the CRA’s internal affairs department.

L’Heureux wanted to let them know about information he had received concerning possible corruption within the ranks at the CRA. As he explained in his testimony, the information was insufficient to start a criminal investigation but it was important enough to bring it to the attention of the CRA for them to investigate internally. [47] [ 52 ] In May 2006, Malo (the Director General of the CRA Internal Affairs) wrote to and met with Inspector Orlando, head of the Commercial Crime

Section of the RCMP, [48] informing him of ongoing rumours of corruption within the CRA ranks. Attached to his letter is a full report documenting allegations between 2000 and 2006, [49] including the information that L’Heureux had provided to the CRA in February 2006. Kehar was among the suspected corrupt agents.

The RCMP refused the request to start an investigation and encouraged the CRA to proceed with an internal investigation. [50] [ 53 ] A similar response from the RCMP refusing to proceed with a criminal investigation into corruption was sent again in August 2007 following the CRA flagging the wiretap conversation from Projet Colisée which referred to Madan Kehar.

Inspector Bonin of the RCMP Commercial Crimes unit sent a letter to Malo, on August 28, 2007, stating that this “new information” did not add anything of significance which would allow the RCMP to start investigation into the matter. [51] [ 54 ] Again, in the fall of 2007, L’Heureux informed Labranche, the newly appointed Sgt-Major of the Commercial Crimes unit at the RCMP, about corruption allegations at the CRA.

Still the information was not deemed solid enough and no action was taken by the RCMP. [52] [ 55 ] Thus, despite the Cogagne earlier investigation into problems related to CRA agents, the repeated rumours – some specifically mentioning Kehar - and the added details of the anonymous tip, the RCMP did not find a sufficient basis to launch an investigation into corruption at the CRA.

Suffice it to say, in the spring of 2007, there was similarly insufficient evidence to launch an investigation (CRA or RCMP) into criminal activities specifically regarding Bruno , and certainly nothing close to sufficient evidence to lay charges against him. ii.

The details in the anonymous tip [ 56 ] The Applicants suggest that given the history of issues regarding possible corruption at the CRA, the tip flagged by Paquette finally gave the authorities what they needed for a criminal investigation: the information provided the name of a specific taxpayer and his accountant (Bruno and Fiorino) and linked them to the long-suspected corrupt agent (Kehar). [ 57 ] For the Applicants, this confirms that from the outset, the investigation was focused on criminal liability. The Court does not agree. [ 58 ] The principles governing the use of an anonymous tip are well-known.

Without sufficient corroboration, a tip cannot be relied on to lay charges or to obtain a warrant. [53] Both Paquette and Godard in their testimony recognized its limited weight. [54] [ 59 ] This view is confirmed in R. v . BT : [55] 83 En effet, lorsqu'elle entreprend la vérification, l'ARC ne possède toujours que des soupçons que B.T. Céramiques se livre à de l'évasion fiscale et qu'un "grand patron" de l'ARC l'y aiderait. À juste titre, la juge parle aussi de "rumeurs", de "préoccupations", "d'insécurité" et de "questions". Or, de tels soupçons n'équivalent pas à des motifs raisonnables de croire que B.T.

Céramiques ou Bruno corrompt un fonctionnaire de l'ARC. Ni l'Information ni les quelques renseignements recueillis alors par Paquette ne lui auraient permis d'obtenir un mandat de perquisition. [ 60 ] Moreover, the contents of the tip indicate that it could not be entirely reliable. The tip claimed that Bruno, with his accountant Fiorino, was involved in tax evasion, and that he had close ties with a CRA higher-up, who was accepting bribes in order to flush GST and QST audits.

As the prosecution points out, however, provincial sales tax does not fall under the mandate of a CRA agent, but that of Revenu Québec. [ 61 ] Even though the tip was insufficient to lay charges and not even reliable enough to mandate a criminal investigation, it did provide legitimate grounds for the auditors to pursue an inquiry. The Quebec Court of Appeal confirms in Agence du revenu du Québec c.

Groupe Enico inc. , [56] that undertaking a tax audit following information received about a taxpayer’s wrongdoing is entirely appropriate, as long as the audit is performed “in good faith and transparently, with no assumption of the taxpayer's bad faith”. Thus, through an audit to verify compliance with tax laws, auditors may legitimately seek to invalidate or confirm information of wrongdoing. [57] This was also the case in Jarvis , where t he Supreme Court noted that at a meeting with the taxpayer, the auditor was seeking to confirm her suspicion that tax evasion may have occurred.

The Court found that the auditor’s goal in making her inquiries was

to determine whether to refer the file for a criminal investigation, and said “ [t]here is no suggestion that she was seeking information to be used in an eventual prosecution. ” [58] iii. Other indications that issues of corruption were known and discussed among the higher-ups at the CRA [ 62 ] Sometime in the winter of 2007, Carole Gouin, director of the Montreal TSO, [59] was randomly stopped in a shopping mall by a lawyer who informed her about a CRA agent, Adriano Furgiuele, who he claimed was taking bribes. Gouin brought this information to Jocelyn Malo at CRA Internal Affairs.

This led to a review of the files under Furgiele’s control. [60] In April 2007, Gouin also asked for an internal review of audit trails by CRA employees, regarding suspicious access to files of taxpayers whose names came up in the course of Projet Colisée. [61] Finally, in January 2008, Gouin was given the 2003 Cogagne report, which dealt with suspicion of corruption at the ARC and mentioned Kehar. [62] [ 63 ] Thus, the Applicants note that on March 28 2007, when Gouin was first informed by St-Amand of the anonymous tip that Paquette had found, and in the period leading up to the audit and during the audit, she knew about a possible corruption problem at the CRA.

Her concern with certain agents’ actions was serious enough to lead to an internal investigation. [63] [ 64 ] In the Court’s view, the fact that the CRA was in possession of background information that served to confirm that there were internal problems at the CRA does not tend to show that the auditors were pursuing a criminal investigation when they conducted their audit of BT and Bruno’s tax affairs. [ 65 ] Furthermore, the fact that internal investigations were ongoing during the time of the audit does not alter the nature of the auditors’ inquiry. [64] [ 66 ] The Applicants submit that even if they have not established that the CRA was proceeding with a criminal investigation from the very start of the audit, then the evidence canvassed above, combined with certain red flags discovered during the audit, indicate that the “Rubicon had been crossed”, as the auditors had gathered sufficient evidence to lay charges, or, at the very least to launch a criminal investigation.

These red flags, allegedly linking the audit file to Kehar, or to corruption at the CRA, are discussed below. [ 67 ] First, at the start of the audit, Talbot noted that an earlier audit of Bruno was seemingly interrupted by a manager at the CRA and that there were rumours that Kehar had “blocked” certain audits. In fact, what Talbot learned was simply that Kehar, a team leader, had instructed an auditor not to request Bruno’s passport. [ 68 ] Second, in the summer of 2007, the auditors found an invoice from Newtown restaurant, mentioning “Agence du Revenu” and “Adriano”.

The invoice was for an office party held at Newtown, which was claimed as a tax deduction by Bruno. When the auditors realized that Adriano Furgiuele was an employee of the CRA, this raised a conflict of interest. The matter was brought to the attention of their team leader, but was not noted in the auditors’ report. As the Court concludes succinctly in R v. BT, the discovery of the Newtown invoice did not mark the “crossing of the Rubicon”. The Court agrees with this conclusion.

Although it certainly could fuel suspicions of wrongdoing about CRA's employees, it was insufficient to confirm them, or to begin a criminal investigation regarding the taxpayer under audit. [65] [ 69 ] Third, a charitable donation made in the name of Bruno, but indicating a different address, caught the attention of the auditors. Their verification disclosed that the address listed was that of Adriano Furgiuele. As explained by the auditors, the purpose of verifying the address was to ensure that the tax deduction was not claimed twice.

Once they realized the connection with the CRA employee, they informed their team leader. This is not evidence tending to show the “Rubicon was crossed”. [ 70 ] Finally, the Applicants refer to an invoice found for the delivery of a kitchen counter from BT to Iammarronne, a CRA auditor who had been in charge of earlier audits of Bruno and BT. Although this is treated as another red flag discovered during the audit, in ARQ c. BT , [66] a thorough review of the facts indicates that this invoice was actually found much later, and not during the audit at all.

The confusion stems from the testimony of Talbot himself who claimed repeatedly during numerous testimonies that he saw this invoice while conducting the audit. However, the evidence establishes that the connection between the invoice and Iammarrone was only discovered on September 30, 2008, thus well after the audit, and after the first wave of searches of May 6 2008. [67] [ 71 ] The combination of all of these elements does not provide reasonable grounds to lay charges.

As to whether a decision to proceed with a criminal investigation could have been made: there is no bar to authorities investigating potential criminal activities as they see fit. It would be hard to ever state categorically that it is inappropriate for police to start an investigation. The Applicants rightly note that according to the testimony of Godard, the option to refer the matter to the RCMP was in fact contemplated, before deciding to proceed with an audit. [68] Nevertheless, the overall facts do not reveal clear indicia that a criminal investigation was required.

Thus, the authorities could have begun a criminal investigation before the file was transferred to the CIP, but there is nothing suspicious or inappropriate about the fact that they did not. (

b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation? [ 72 ] The Applicants point to several examples relating to the conduct of CRA employees that they argue is consistent with the pursuit of a criminal investigation, namely: i. The conduct of Paquette ii. Accessing files iii. The start date of the audit iv. Bad faith/hidden agenda v. An exaggerated T-134

vi. Request for discretion vii. Curious annotations viii. Requirement powers used i. Conduct of Paquette [ 73 ] Once Paquette got hold of the anonymous tip, he began accessing CRA files to determine the identity of the people mentioned. In 2006 and 2007, before the file was given to the auditors, Paquette consulted some sixty or more screens of the CRA database. He also called the auditor previously in charge of the BT file, Iammarrone, to ask him whether anyone had interfered with the audit of the company.

He saved his searches in a folder titled “Corruption”. [ 74 ] The Court agrees that Paquette was concerned with issues of corruption at the CRA, [69] but this early interest in corruption does not shed light on the auditors’ primary focus of their inquiry or establish that a criminal investigation into Bruno and BT had commenced. ii. Accessing files [ 75 ] The Applicants refer to the fact that Talbot accessed the CRA computer files of Fiorino and his wife, even before the CRA was informed that Fiorino would represent Bruno and BT for the purposes of the audit.

They argue that this is further indication that the auditors were well aware, and interested, in the underlying issues of corruption in the file, and not merely concerned with compliance issues. These inquiries by Talbot remain unexplained. [70] Despite the absence of explanation, the Court finds no link between the access to these files - surprising though they seem - and an indication that the auditors were pursuing a criminal investigation.

If the auditors had been given any information about the existence of the anonymous tip, it was not inappropriate for them to pursue an audit in order to verify its authenticity. [71] This does not make their inquiry predominantly a criminal investigation. [ 76 ] Another reference to agents accessing the taxpayer files is raised concerning Godard, who met with Paquette and St-Amand in February 2007 to discuss the anonymous tip. Godard accessed Bruno’s tax file on April 2, 2007.

He testified that he did so to ensure that Paquette had removed the reference to “Corruption” in relation to Bruno or BT, just as St-Amand had instructed them in March 2007. [ 77 ] No inference can be drawn from this indicating that a criminal investigation was underway. iii. S tart date of the audit [ 78 ] The Applicants note that even though the audit was only officially begun on April 18, 2007, [72] Talbot’s time sheets indicate that he recorded 8.5 hours of work in this file as of April 2, 2007.

It is unclear what the source of this discrepancy is, but it does not assist in determining conduct consistent with the pursuit of a criminal investigation. iv. Bad faith/ hidden agenda [ 79 ] The Applicants point to indications that they suggest show the auditors’ bad faith and attempts to conceal certain facts. [ 80 ] First, regarding Talbot’s admission that he purposefully destroyed the contents of his agenda of April 2007 in order to avoid having to answer numerous requests for access to information.

There is no doubt that such conduct casts his testimony in a negative light, particularly as it demonstrates an absence of cooperation and transparency. In and of itself, this does not lead to the inference that a criminal investigation was underway. However, it may be considered in the context of the facts as whole when assessing whether the auditors were hiding their true (or predominant) purpose in conducting the audit. [ 81 ] Second, the Applicants suggest that the auditors’ failure to respect their “duty to be transparent” is a further clue as to the true purpose of their audit.

They refer to the decision in Jarvis where, although finding an absence of a breach, the Supreme Court did note that the auditor misled the taxpayer and should have answered truthfully when the taxpayer asked about the status of his file. [73] Similarly, in the case at bar, when Fiorino first met with the auditors, he inquired as to whether they were conducting a civil or criminal investigation and they responded (untruthfully, according to the Applicants) that it was a civil audit. This answer was either truthful or it was not. That is precisely the question at issue.

Thus the answer of the auditors to Fiorino’s question is of no assistance in deciding the issue. [ 82 ] The Applicants’ further claim that the auditors failed in their duty of transparency by not advising Bruno about the red flags they discovered during the audit. This, as they argue, is another example of their hiding the true focus of their audit. [ 83 ] As underscored in R. v. BT , [74] it would be hard to reconcile an obligation of complete transparency with the very nature of the inquiry undertaken by auditors.

Certainly, it would not be appropriate for auditors to inform a taxpayer of suspected problems with the conduct of CRA employees. [ 84 ] The “transparency obligation”, noted by the Quebec Court of Appeal in Agence du Revenu du Québec v. Enico, [75] refers to the auditor’s professional and ethical obligations to exercise their discretion fairly with transparency and honesty. The Ontario Court of Appeal explains in R v .

Tiffin , [76] that a proper review of the Supreme Court’s decision in Jarvis indicates that: […] covertness, surreptition and subterfuge designed to inculpate the taxpayer are acceptable conduct in the regulatory enforcement of the ITA . […] CRA officials do not have to establish a cooperative, transparent and open relationship with taxpayers in the regulatory enforcement of the ITA . This is especially true for CRA officials working in the SEP who are inquiring into the unreported income of suspected criminals . (Emphasis added)

[ 85 ] As further noted in Tiffin , “Indisputably, the Jarvis auditor did not establish a relationship with the taxpayer based on cooperation, openness and transparency. Moreover, she collected a great deal of information from third-party sources before she “got together” with the taxpayer.” [77] Nevertheless, the Supreme Court found the purpose of the auditor’s inquiries was to assess civil liability. [ 86 ] The examples raised here by the Applicants of a lack of transparency do not establish any conduct consistent with the pursuit of a criminal investigation. [78] v.

An exaggerated T-134 [ 87 ] The auditors sent their file to the CIP investigators through a Referral to the Enforcement Division, known as a “T-134” form. [79] According to the Applicants, some of the information included in the T-134 is false. For example, they point out that no invoices of convenience were actually found and the auditors misunderstood certain accounting information leading them to an erroneous conclusion about undeclared income. Furthermore, they take issue with the mention that Bruno did not cooperate with the audit process.

The Applicants also note that an “inflated” proposed assessment of close to 5 million dollars in unpaid taxes was drafted, when in fact, two years later, an assessment for only $200,000 was sent to Bruno. [ 88 ] The argument presented by the Applicants is that these elements were exaggerated in order to bolster the auditors’ grounds to request an investigation. The logic of this argument is not apparent, given that, according to the Applicants, the CRA had grounds to request a criminal investigation well before March 2008 and thus they would not have needed anything more to justify their request.

The issue raised by the Jarvis principles is that the auditors inappropriately used their search powers in the interest of gathering evidence for a criminal investigation. Exaggerating a referral to the CIP for an investigation is not an indication of such a misuse of their audit powers. [ 89 ] The Prosecution also notes that in January 2008, after the auditors gave Bruno a final 30 days to respond to their proposed assessment, Proulx first considered proceeding with asset protection, a measure perfectly in sync with a civil audit.

It was only after a discussion with counsel and a review of the issues of concern that a decision was made to refer the file for a criminal investigation. [80] This is inconsistent with the suggestion that the T-134 was exaggerated in order to further the auditors’ true purpose, i.e., a criminal investigation. vi. Request for discretion [ 90 ] Just as Bruno argued before Larochelle, J., the Applicants suggest that the request by St-Amand to proceed discreetly with this audit is an indication that the CRA was truly interested in proceeding with a criminal investigation.

However, as the Superior Court concluded, and this Court agrees, the suspicion that there were corrupt agents at the CRA completely explains the requirement to proceed discreetly within the CRA. No covert or hidden agenda on the part of the SEP can be gleaned from their concerns with discretion during the audit. [81] vii. Curious annotations [ 91 ] The Applicants refer to the “plan de vérification” prepared by the auditors which contains handwritten notes referring to “expenses” and “Kehar”.

They argue that this demonstrates that the auditors were searching for evidence related to corruption, as Bruno’s expenses could reveal payments made as bribes. [ 92 ] The Court disagrees. There is nothing suspect about an audit plan looking for expenses claimed. As for noting down the name of Kehar, the auditors knew that Kehar had earlier intervened in an audit regarding Bruno (asking an auditor in his group not to request Bruno’s passport), which could explain why his name appears in their notes.

It remains unclear whether the auditors themselves were aware of the anonymous tip, but the evidence does establish clearly that no steps were taken during the audit regarding an investigation of Kehar. [ 93 ] The Applicants also note that when the auditors met with Bruno and Fiorino at the head office of BT, they took notes describing the physical space, the alarm system, and the number of computers on the premises. They submit that these details are in sync with preparations for an eventual search.

According to the testimony of the auditor, Proulx, [82] however, these notes are made on a pre- printed questionnaire that is filled out in every civil audit. As such, they do not serve as an indication that the auditors were in fact pursuing a criminal investigation. viii.

Requirement powers used [ 94 ] The auditors proceeded quickly with requirement letters (“demandes péremptoires”) in order to access banking documents which, according to the Applicants, is usually a last-resort step taken by auditors. [ 95 ] The use of requirement letters is permitted by law at any time. [83] The Court draws no inference from their use here in regards to the pursuit of a criminal investigation. (

c) Had the auditors transferred their files and materials to the investigators? [84] [ 96 ] The Applicants refer to the fact that Godard transferred Paquette’s “corruption file” to St-Amand. This file included the anonymous tip; information about Bruno and BT; an excerpt of a wiretap conversation from Projet Colisée involving Kehar; printouts of screen captures from the CRA databank; and income tax returns. However, St-Amand did not send this file to the auditors.

He also instructed Paquette to cease his inquiries into the matter. [ 97 ] In addition, the Applicants claim that the Newtown invoice discovered during the audit was transferred to Godard, head of the CIP. The evidence in support of this claim is far from clear. In a briefing note [85] prepared by Léveillé (CRA internal investigator), at the time the audit was ongoing, the Newtown invoice is mentioned. [86] Testifying about this briefing note some 12 years later, Léveillé states that Godard “might” have shown it to him or given it to him, but he is not sure. [87] He later contradicts part of this testimony when

he states that he never actually saw the invoice until his meeting with the police after Chouinard's complaint in September 2008. [88] Godard, on the other hand, testified that he never told Léveillé about the invoice during his meetings with him in January 2008 and further stated that he first learned of the invoice only after the May 2008 searches. [89] [ 98 ] The inference that the Applicants ask the Court to draw is that Godard must have had the Newtown invoice during the time the audit was ongoing. The Court draws no such inference.

The evidence is insufficient to establish this assertion. [ 99 ] That said, the evidence does establish that there was some discussion about the Newtown invoice that went beyond the auditors. This is not surprising. An invoice for an office party of CRA agents found at a taxpayer’s home is a red flag, as it indicates a conflict of interest of a CRA agent. Even if Godard was informed of this invoice, it was not sufficiently compelling to alter the predominant purpose of the audit.

This was the conclusion reached by the Superior Court as it stated: “Quant à la facture du Newtown, elle permettait sans doute d'aviver les soupçons, mais pas de les confirmer suffisamment pour entamer des procédures pénales”. [90] [ 100 ] There is nothing improper about auditors transferring information legitimately obtained in the course of an audit to criminal investigators. [91] What Jarvis reminds us is that from the moment a criminal investigation begins, Charter protections must be respected and the auditors can no longer use their search powers to continue to gather information in furtherance of the criminal investigation. [92] That said, it is perfectly acceptable for a civil audit and a criminal investigation to proceed simultaneously. [93] What is prohibited is conducting a criminal investigation with the tools available to tax auditors. [ 101 ] In applying the Jarvis criteria, the question of a transfer of files often arises where the auditors send their findings to the investigators, but no investigation is started.

As explained in Jarvis , when such a file is then transferred back to the auditors, it is important to scrutinize whether the investigators have “actually declined to take up the case and have returned the matter so that the audit can be completed”, or whether “they have sent the file back as a matter of expediency, so that the auditor may use ss. 231.1(1) and 231.2(1) of the ITA to obtain evidence for a prosecution. ” [94] [ 102 ] In the present case, there was no transfer of material from the auditors to the CIP which was subsequently returned to continue the audit. [ 103 ] The auditors here completed their T-134 on March 25 2008 and transferred all of their information to the CIP (the investigation branch of the CRA).

That transfer was entirely appropriate, as it marked the end of the audit and the start of the criminal investigation. From that moment, no further information was gathered pursuant to the audit powers under the ITA , and no other meetings were held with Bruno or Fiorino. (

d) Was the conduct of the auditors such that they were effectively acting as agents for the investigators? And (

e) Does it appear that the investigators intended to use the auditors as their agents in the collection of evidence? [ 104 ] These two questions may be treated together, as both involve the same inquiry to determine whether the auditors were in fact acting on behalf of the investigators, who sought to collect evidence useful to a criminal investigation through the audit process. The Applicants refer to two examples of such collaboration between the auditors and investigators. [ 105 ] The Applicants refer to the fact that the auditors informed their team leader of their findings, for example the Newtown invoice.

As previously noted, there is nothing improper with auditors sharing suspicious information that is uncovered during the course of an audit [95] and thus nothing wrong with their team leader reminding them to do so. Evidence that the auditors were actually mandated to look for suspicions elements relating to the criminal liability of Bruno would be an indication that the purpose of their inquiry was criminal liability.

However, no such evidence was established here. [ 106 ] As to arguments regarding the collaboration between auditors Proulx and Talbot with investigator Faribault, it must be noted that this occurred after the file was transferred to the CIP. That is when the information gathered through the audit was provided to Faribault and used in his own investigation and the preparation of his ITO [96] . The fact that Faribault took relatively little time to draft the ITO is not an indication that the auditors worked as his agents.

The same can be said of Faribault’s request for additional compensation, which is normally only awarded for particularly difficult files, and the fact that the RCMP was advised in advance that they would be assisting in an eventual search. [ 107 ] The Court finds no evidence of collaboration or delegation of responsibility between the auditors and the investigators which would indicate that the predominant purpose of the audit was criminal liability. (

f) Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer's mens rea , is the evidence relevant only to the taxpayer's penal liability? [ 108 ] In determining the predominant purpose of an inquiry, evidence that the information sought was relevant only to a taxpayer’s penal (or criminal) liability would certainly provide a strong indication that the main object of the inquiry was penal.

However, when the information sought can be relevant to both a criminal investigation and to a civil audit, it does not establish that the predominant purpose of the inquiry was a criminal investigation. [ 109 ] As the Ontario Court of Appeal clarified in R. v. Tiffin : [97] [180] The trial judge's error is that he did not pay heed to the word "only" in factor (f). Factor (

f) addresses whether the evidence sought is relevant "only to the taxpayer's penal liability". It is not enough that the inquiry seeks evidence that could be seen as relevant to penal liability when it is clearly relevant to civil liability as well. [181] It would gut the broad inspection and requirement powers to reason that an inquiry is predominantly penal as soon as an inquiry seeks information that could be [relevant] in a penal prosecution. Such reasoning would prevent any use of the inspection and requirement powers without warrant because the elements of the criminal tax offences always encompass the elements of the regulatory

tax offences. One must keep in mind that the ITA is essentially a regulatory statute and the broad inspection and requirement powers are valuable regulatory tools. [ 110 ] The Applicants have not referred to any information sought by the auditors that would be relevant only to criminal liability. They refer to the fact that the auditors were seeking expenses of Bruno and BT. If it can be argued that this information related to criminal liability, as it could provide evidence of bribes paid, it was not solely related to criminal liability.

As discussed above, this was information that could legitimately be sought in a tax audit. [ 111 ] The Applicants also refer to evidence relevant to Bruno’s criminal liability that was discovered during the searches. As noted in R. v. BT [98] , evidence found after the audit was terminated cannot be considered to be evidence that the auditors sought during their audit. [ 112 ] The Court finds no evidence of the auditors seeking information relating only to Bruno’s criminal liability. Addressing this issue, the Superior Court concluded in R. v.

BT [99] as follows: “ En l'espèce, la preuve recherchée s'avère pertinente tant pour l'établissement de la responsabilité civile des Intimés que pour celle de leur responsabilité pénale ”. The same is true on the evidence before this Court. (

g) Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation? [ 113 ] The Applicants raise a number of additional factors that they argue are indicative that the audit had become a criminal investigation, namely: i. Fiorino suspected a criminal investigation was underway ii. Actions of certain CRA agents iii. Proximity between the SEP and CIP iv. Comments by CRA agents describing the nature of the inquiry i.

Fiorino suspected a criminal investigation was underway [ 114 ] As mentioned above, the Applicants note that during his first meeting with the auditors assigned to the file, Bruno’s accountant, Fiorino, asked whether the CRA suspected that his client had ties with the Mafia, or the Colisée investigation and wanted to know if they were conducting a civil audit or a criminal investigation. They suggest that this is another indication that reveals the true purpose of the inquiry. The Court does not agree.

The fact that Fiorino himself seemed worried that a criminal investigation could be underway does not inform the Court as to the predominant purpose of the auditors’ inquiry. ii. Actions of certain CRA agents [ 115 ] The Applicants refer to certain actions of CRA agents, St-Amand, Catherine Pennors (CIP investigator), [100] and Cavanagh (CIP team leader), whom they allege knew about the audit’s focus on criminal responsibility. For example, according to Chouinard, St- Amand noted that the first wave of searches would involve “sensitive issues” linked to CRA employees.

St-Amand denies this. [101] Further, the Applicants point out that the “Plan of Action” document was seized at the request of Pennors, because of her prior knowledge of a tip about corrupt CRA agents. [102] Finally, the Applicants plead that Cavanagh denied that he expected to find evidence relating to corruption during the searches, yet one week after the searches, he surprisingly was able to recall that he noticed the name “Adriano” with a CRA telephone number, in a pile of Bruno’s phone messages.

According to the Applicants, this indicates that, contrary to his testimony, he was indeed looking for links to CRA agents or to corruption. [ 116 ] A review of this evidence as a whole allows for the inference that the CRA was aware of internal problems within their ranks before they started the first wave of searches. It does not, however, lead to an inference that the auditors were predominantly concerned with a criminal investigation of Bruno and BT. iii. Proximity between the SEP and CIP [ 117 ] The Applicants submit that information flowed easily between the SEP and the CIP.

At the time of this investigation, both units were under the responsibility of the same director (St-Amand) and they shared the same physical space, separated only by modular wall panels. As such, the Applicants are correct to point out that only minimal safeguards were in place to ensure that information from the audit department not be inappropriately leaked to, or used by the investigation department. [ 118 ] However, the mere proximity between the SEP and CIP is not evidence that the audit had become a criminal investigation.

In Tiffin , the Ontario Court of Appeal similarly noted that “ [t]he Supreme Court's reasoning in Jarvis makes evident that the mere proximity of the auditor to the investigator in the CRA office space is insufficient reason to find the auditor acted as an agent for the investigators.” [103] [ 119 ] Regarding the particular facts at issue here, the overlap between the two branches was seen as problematic by the Applicants with respect to Paquette’s role, as well as the actions of Godard and St-Amand, some of which have already been addressed above. [ 120 ] In the case of Paquette, he was a member of the SEP and did not conduct criminal investigations.

Although he was eventually given the title of “investigator” while he was seconded to Projet Colisée, this was done solely for him to have access to wiretap conversations. He never became a CIP investigator with specific investigation files. His mandate remained that of identifying files ripe

for audits by the SEP, and coordinating the activities of the CRA with other police forces and agencies involved in Projet Colisée. [104] [ 121 ] The Applicants argue that Godard, team leader of the CIP, is omnipresent, from the discovery of the tip to the conclusion of the audit. However, this assertion is not supported by the evidence. He does not appear to have been involved once St-Amand decided to proceed with an audit of Bruno and BT. As mentioned earlier, the evidence does not establish, that he was made aware of the Newtown invoice during the audit.

Moreover, Godard's actions in bringing the anonymous tip to the attention of St-Amand and participating in meetings concerning the tip before the audit began does not lead to an inference that the audit was pursuing issues of criminal liability. [ 122 ] Regarding St-Amand, he was in charge of both the SEP and CIP. He was made aware of the anonymous tip found by Paquette and ordered the audit of Bruno and BT.

The evidence shows that St-Amand asked for discretion in conducting the audit, was aware that information relating to CRA employees’ wrongdoing might be disclosed in the course of the audit, and he instructed the auditors to keep him apprised of any of such findings.

As summarised above, St-Amand was concerned with a number of issues, namely, certain irregularities with an earlier audit of BT ; unauthorised accesses to CRA computer information; intimidation of a CRA agent during the course of an earlier audit; and the content of the anonymous tip. [ 123 ] These facts indicate that St-Amand undoubtedly knew of the concerns regarding suspected corruption, and he understandably was interested in pursuing these issues. However, they do not establish that the predominant purpose of the audit was a criminal investigation.

The concerns of St-Amand, a senior officer at the CRA, who did not conduct the audit, do not lead to the conclusion that the auditors used their powers to gather evidence in furtherance of a criminal investigation into Bruno or BT. iv. Comments by CRA agents describing the nature of the inquiry [ 124 ] The Applicants suggest that certain comments made by CRA argents themselves serve to shed light on the true nature of the audit and support their argument that it was predominantly a criminal investigation. [ 125 ] The first comment they refer to was made by Pennors.

She testified that the internal investigation and the audit were “indistinguishable.” [105] [ 126 ] However, Pennors first heard of BT at a briefing meeting to prepare the searches in May 2008. She had no input into the audit. This remark she makes comes in a confused part of her testimony as she is trying to explain how she secretly asked Godard whether the search to be conducted had anything to do with some names he had her check in the database, some time prior to this briefing. [106] [ 127 ] The second comment cited by the Applicants is by Paquette.

He indicated that for him, BT was not important, his priority was with corruption. [107] [ 128 ] Lastly, the applicants refer to Godard’s statement to the effect that one could say that BT was a third party in all of this. This is part of his explanation that a corruption inquiry focuses on the organisation and not the taxpayers implicated: in such an investigation, BT would be a third party, or a secondary concern. [108] [ 129 ] The overall thrust of these comments is once again that the concerns regarding corruption at the CRA were serious and preoccupied many at the CRA.

They do not, however, provide insight into the predominant purpose of the audit. While the auditors had grounds to pursue an audit of Bruno and BT, the underlying concerns about corruption did not convert this audit into a predominantly criminal investigation into corruption at the CRA and even less so specifically into Bruno’s criminal liability. Conclusion re “Jarvis breach” [ 130 ] The evidence discloses the CRA’s ongoing concerns about corruption, but does not establish that the audit of Bruno and BT proceeded with the purpose of establishing criminal liability relating to that corruption.

The information provided in the anonymous tip, despite its questionable reliability, could properly fuel an audit and an attempt to verify its allegations.

The suspicions linking Kehar to Bruno did not prevent the auditors from legitimately pursuing a compliance audit of Bruno. [ 131 ] A review of the evidence as a whole does not establish that the predominant purpose of the compliance audit was an investigation of criminal liability related to Bruno’s tax evasion or to his alleged participation in corruption with a CRA agent. [ 132 ] Furthermore, the pursuit of parallel internal investigations into unlawful behaviour by CRA agents does not alter the nature of this audit. The Court explains this in R. v.

BT: 94 En effet, dans Jarvis , la Cour suprême n'émet aucun principe juridique qui empêche l'ARC d'ouvrir une enquête interne de type disciplinaire parallèle sur le comportement de ses employés à partir d'une même information anonyme. Une enquête sur la probité d'un employé ne constitue pas une enquête dont l'objet prédominant vise à établir la responsabilité pénale du contribuable. Elle ne place pas ce dernier et l'ARC dans une relation de nature contradictoire qui mette le droit à la liberté du contribuable en jeu. Or c'est ce qu'interdit Jarvis .

Il en va de même pour une enquête criminelle portant sur un employé, à moins qu'elle n'amène les autorités fiscales à tenter de mobiliser un contribuable contre lui-même. [ 133 ] The CRA had ample reason to proceed with an internal investigation and try to uncover any rogue agents.

But such an internal investigation did not alter the predominant purpose of the audit of Bruno and BT. [ 134 ] Finally, while the Applicants did point to several elements of evidence that were either unexplained or seemingly inappropriate - such as Talbot destroying his notes; the fact that the auditors appear to have spent time working on the audit before an audit was commenced; and the insufficient boundaries separating the SEP and the CIP - they do not convince the court that the predominant purpose of the audit was criminal.

[ 135 ] The facts here, as expanded since the hearing before Larochelle J., lead to the same conclusion as that of the Superior Court in R. v . BT, namely that the Applicants have not established a Jarvis breach. The information contained in the ITO derived from the compliance audit should not be excised, as it was validly obtained by the auditors, and subsequently properly given to the investigators to pursue a criminal investigation. 2 .

Are the warrants based on falsehoods and / or misrepresentations that should BE REMOVED from the ITOs? [ 136 ] The Applicants allege that several mentions in the ITO should be removed because they are false, misleading or are otherwise the product of illegally obtained information. The focus here is on the ITO for the “Faribault warrants” but the claim is that all of this information was simply repeated in the subsequent ITOs for search warrants, a wiretap warrant and production orders. Consequently, they argue that the portions to be removed must be stricken from all subsequent ITOs.

In their view, once these portions have been removed, the remaining evidence would have been insufficient to satisfy the issuing judge that the warrant in question should be issued. [ 137 ] The criteria for reviewing a warrant is set out by the Supreme Court of Canada in R . v. Araujo , [109] where the role of the reviewing judge is explained.

The process is not a rehearing of the application for the warrant, but a review, in light of evidence of fraud, non- disclosure, misleading evidence and new evidence, to determine whether there remains a basis founded on reliable information to authorise the search. [110] [ 138 ] As further explained by Fish, J. in Morelli : The question is not whether the reviewing court would itself have issued the warrant, but whether there was sufficient credible and reliable evidence to permit a justice of the peace to find reasonable and probable grounds to believe that an offense had been committed and that evidence of that offense would be found at the specified time and place. [111] [ 139 ] In raising a sub-facial challenge to the warrants, the Applicants argue that the record put before the issuing judge did not accurately reflect what the affiant knew or ought to have known, and that if it had, the authorisation could not have issued . [112] The Applicants take issue with the five following elements in Faribault’s ITO: [ 140 ] The investigation began on April 7 2008 : [113] The Applicants argue that the criminal investigation started with the initial audit, one year earlier.

However, as explained in the “ Jarvis breach”

section herein, the Court does not find that the audit was in fact a criminal investigation. After completing the T-134 form to recommend a criminal investigation, the auditors met with Faribault on April 7 2008.

That date marks the start of Faribault’s criminal investigation as stated in his ITO. [ 141 ] Bruno was not forthcoming with information the auditors requested of him : [114] The Applicants argue that the drafting of the ITO caused the issuing judge to draw false inferences about Bruno’s lack of cooperation in the audit. [ 142 ] The ITO mentions that the auditors requested electronic copies of accounting information, but that this was never provided. Fiorino (Bruno’s accountant) told the auditors that Bruno had his computer stolen in 2005 and that he would provide them with the police report of the theft.

However, this police report was not provided. These entries in the ITO explain why the audit was not complete, but, according to the Applicants, they create the impression that the theft of Bruno’s computer was a lie. [ 143 ] At the hearing before Larochelle, J., the evidence disclosed that Bruno was indeed the victim of a theft. When the auditors tried to obtain the theft report from the police, they used the wrong file name and as a result, the report was not found. This left the auditors with the false impression that the theft was invented to avoid complying with their requests.

The police report confirming the theft was only found at a later date. [ 144 ] The Applicants therefore argue that the drafting of the ITO creates the false inference that Bruno failed to cooperate. The Court does not agree. [ 145 ] To determine if an affiant has mislead the issuing judge, the reviewing judge must review the information provided in light of the facts as they existed at the time the affidavit was sworn in order to determine what the affiant knew or should have known. [115] At the time he drafted his ITO, Faribault had reason to honestly believe that there was no report of any theft.

Furthermore, his ITO does not state that Bruno was lying, only that the report was not found, which is true. As such, the ITO was not drafted to cause the issuing judge to draw false inferences about Bruno’s lack of cooperation. [ 146 ] Certain other listed documents were requested but not provided : [116] According to the Applicants, the evidence at the hearing shows this to be false and that the documents requested by the auditors were provided. [ 147 ] The ITO references a request for sales contracts and purchase agreements with suppliers that the Applicants claim were in fact provided.

They refer to a letter sent by Fiorino to Proulx in this regard. [117] [ 148 ] Contrary to the submissions of the Applicants, the correspondence

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