Her Majesty the Queen - v. -, 2011 SKPC 134

IN THE PROVINCIAL COURT OF SASKATCHEWAN Citation: 2011 SKPC 134 Date: August 23, 2011 Information: 24424803, 35864791 Location: Esterhazy, Saskatchewan _____________________________________________________________________________ Between: Her Majesty the Queen - and - James Besler Appearing: Greg Fellinger For the Provincial Crown Bruce Bauer For the Federal Crown Aaron Fox, Q.C.

For the Accused DECISION ON SENTENCING BRENT KLAUSE , J [ 1 ] James Besler stands charged that he, between July 31, 1994 and October 24, 2006, at or near Esterhazy, Saskatchewan did by deceit, falsehood or other fraudulent means defraud John Skilnick, Gary Kreklewich, David Grodecki, Larry Miller and Ken Moar, of money of a value exceeding $5,000.00 contrary to s. 380(1)(a). Contemporaneously he was also charged with ten counts of evading federal income tax contrary to s. 239(1)(

a) and s. 239(1)(

d) of the Income Tax Act . [ 2 ] On February 8, 2011, the Accused pled guilty to the single count of fraud on Information 24424803 and further pled guilty to the following three counts under the Income Tax Act on Information 35864791:

Count 1 [ 3 ] James Besler of Esterhazy, Saskatchewan did at or near the Town of Esterhazy, Saskatchewan, in the Province of Saskatchewan between the 31 st day of December 2004 and the 1 st day of May 2007, wilfully evade the payment of taxes imposed by the Income Tax Act upon James Besler for the 2005 and 2006 taxation years by failing to report income of $360,000.00, more or less, thereby evading tax of $104,111.54, more or less, and did thereby commit an offence contrary to s. 239(1)(

d) of the Income Tax Act . Count 5 [ 4 ] James Besler of Esterhazy, Saskatchewan did at or near the Town of Esterhazy in the Province of Saskatchewan, between the 31 st day of December 2004 and the 1 st day of March 2006, wilfully evade compliance and payment of taxes imposed by the Income Tax Act upon Gary Phillips, Robert Thompson, Brian Warren, and Donald Hood by failing to include the T4 Information Slips of the said individuals on the Skilnick Besler Miller Moar & Company T4

Summary Returns for the 2005 taxation years, thereby understating employment income in the amount of $923,699.17 and payroll deductions in the amount of $347,483.46, more or less, and by failing to remit federal tax of $195,985.11, more or less, and did thereby commit an offence contrary to s. 239(1)(

d) of the Income Tax Act . Count 8 [ 5 ] James Besler of Esterhazy, Saskatchewan did at or near the Town of Esterhazy, in the Province of Saskatchewan, between the 31 st day of December 2004 and the 1 st day of March 2006, wilfully evade compliance and payment of taxes imposed by the Income Tax Act upon Elmer Goldsmith and Robert Thompson by failing to include the T4a Information Slips of the said individuals on the Skilnick Besler Miller Moar & Company T4A

Summary Returns for the 2005 taxation years, thereby understating other income in the amount of $99,673.32 and payroll deductions in the amount of $28,083.00, more or less, and by failing to remit federal tax of $16,617.16, more or less, and did thereby commit an offence contrary to s. 239(1)(

d) of the Income Tax Act . [ 6 ] The matter was subsequently adjourned for sentencing until May 10, 2011 at Esterhazy, Saskatchewan. The Facts: [ 7 ] The facts are not in dispute and a brief recounting of them is appropriate to put this decision into context. [ 8 ] Skilnick Besler Miller Moar & Company was and is a chartered accounting firm established in 1972 with offices in Esterhazy and Melville, Saskatchewan (the “Firm”). It is now known as Skilnick Miller Moar Grodecki and Kreklewich.

In July of 2009, the Accused had been a partner in the firm for 25 years and was the managing partner at the Firm’s Esterhazy office where he maintained autonomous control over the office books, bank accounts and in particular, the Mosaic payroll account. [ 9 ] Mosaic owns and operates a large potash mine near Esterhazy, Saskatchewan and is one of the most prominent and largest businesses in the district. The Firm had a longstanding payroll trust arrangement with Mosaic, such that the Esterhazy office would receive funds from Mosaic and pay the Mosaic executives directly on a monthly basis. Mr.

Besler was then obligated to issue the proper payroll cheques and remittances and remit to the Canada Revenue Agency (“CRA”) the appropriate deductions. [ 10 ] In July of 2009, the Accused left the Firm without notice just as the events leading to the fraud were about to be discovered. He fled to Costa Rica on July 6, 2009, leaving a note advising his wife that they were in financial difficulties and he was off to win them some money. The Firm was advised by CRA that it owed approximately $1.5 million in outstanding payroll taxes, including interest and

penalties, relating to shortfalls on CRA remittances deducted from the Mosaic Potash Mine Executive Payroll. Unknown to the other partners, the CRA had been auditing the Firm regarding the Mosaic shortfall since November of 2008, but up until June of 2009, that audit process had only involved the Accused; he did not disclose this information to his partners. [ 11 ] Subsequently the RCMP issued a Canada Wide Warrant and he later returned voluntarily to Canada to answer to these charges. [ 12 ] The internal audit conducted by the Firm led to the RCMP conducting a criminal fraud investigation.

The investigation revealed that between the charge dates, James Besler issued unauthorized Firm cheques to himself totalling $1,035,000.00.

He concealed his actions by utilizing his skills as a chartered accountant and relied on the implicit trust his partners had in his management of the Mosaic account. [ 13 ] Between 1994 and 2002, the Accused concealed the theft by failing to account and making false entries in the office ledgers by the following techniques: - he made false deposit entries and failed to account for his unauthorized cheques in the Firm’s general ledger; - he posted false entries to his drawings account to balance or correct the deficits in the general ledger versus the bank accounts; and - he falsified the bi-annual financial statements for his office and failed to account to his partners in his reporting of office finances. [ 14 ] In 2003, the Accused began to use Mosaic payroll funds to cover his previous fraudulent transactions and to further defraud the Firm.

The Accused would skim funds off the CRA remittances for some of the Mosaic executives, which he would then either divert to his own use or use to cover his past fraudulent activities in his Firm’s accounts. In order to conceal his actions, he issued false T4 slips to both the CRA and Mosaic executives. To the CRA, he issued false T4 slips that correlated appropriately to the amounts he had remitted to CRA on behalf of the Mosaic executives but failed to disclose the accurate higher salaries and remittance amounts.

To the Mosaic executives, he also issued false T4s that correlated appropriately to their salaries and remittances which should have been made on their behalf by the Firm to the CRA. [ 15 ] In 2006, Mosaic transferred its Executive Payroll Account from the Firm leaving the Accused with only the Retired Employee Pension Compensation Account which greatly reduced the monthly cash flow at his disposal and limited his ability to cover the fraud by skimming from current remittances to cover past arrears.

The fraud in relation to the additional funds ended in October of 2006 and thereafter Besler worked at avoiding detection by his partners and the CRA. [ 16 ] The initial audit conducted by the CRA indicated that the Firm owed the CRA a total of $1,519,121.66 which figure included penalties and interest. The Firm was able to convince the CRA that they too were victims of the fraud and as a result of negotiations were able to reduce their CRA liability to $1,119,790.94.

Each partner had to find and fund his own share of the outstanding obligation to the CRA in order to clear the Firm’s debt to the CRA. [ 17 ] The Accused provided a warned statement to the police in which he admitted to the offence and revealed that the stolen money had all been spent.

His counsel advises that the money was basically used to fund a lifestyle that the Accused could not otherwise afford on his partner’s salary. [ 18 ] Subsequently the Accused liquidated his remaining assets which consisted mostly of his dwelling in Esterhazy and some mutual funds which reduced the amount he owed to the Firm by $303,159.11. The house had been transferred into his spouse’s name, but with her consent, the house was sold and the proceeds used to pay down his theft from the Firm.

He now remains owing to his Firm a total of $816,631.80: he essentially owes each of his former partners the sum of $163,326.36. Sentencing Positions:

[19] The Provincial and Federal Crown agree that an appropriate sentence for a theft of this magnitude by a person in a position oftrust should be three years in a federal facility.

The Provincial Crown in addition seeks s. 738 orders for each of the Firm’s fiveremaining partners in an amount of $163,326.36. [20] In regard to the three federal charges, the Federal Crown suggests that a total fine of $316,713.81 be levied against theAccused and that the appropriate sentence in regard to Count 5 would be two years incarceration; for Count 1, a sentence of one yearconsecutive to Count 5 and in regard to Count 8, a sentence of six months concurrent, for a total of three years, all to run concurrentlywith the provincial sentence.

The Federal Crown suggests that in default of payment of the aforementioned fine, that a further sentenceof six months consecutive on each of the three charges, consecutive to each other be imposed and consecutive to any sentence he receiveson the provincial charge. They further suggest that in the event the monthly installment of the fine is not paid, that the entire amountbecome due and payable forthwith. [21] The Defence argues that an appropriate sentence given the Accused’s previous lack of a record should be two years less a dayin a provincial facility so that the Accused could remain closer to his family.

The Defence agrees with the Federal Crown in relation tothe fine imposed and agrees to the restitution orders pursuant to s. 738 in favour of each of the Firm’s partners. The Defence furtherrequests that the fine repayment be staggered so that the Accused upon his release from his incarceration can re-establish himself in hispresent employment and attend to repaying his debts. Case Law: [22] The Provincial Crown relies on the following cases: R. v. Gopher, 2006 SKCA 5 R. v. Harding, 2006 SKCA 118 R. v. Kobsar, unreported, September 9, 2004 per Wimmer J. R. v. Oates, 2008 SKQB 274 R. v.

Germain, 2010 SKPC 144 R. v. Hynes, unreported, July 12, 2006, Irwin PCJ (Sask. Prov. Ct.) R. v. Ens, unreported, March 14, 2007, Carey PCJ (Sask. Prov. Ct.) [23] The Federal Crown relies on the following: R. v. Amell et al, 2010 SKPC 107 R. v. Wigmore et al, (SKQB) R. v. Howe et al, 2002 ABCA 277 R. v. Onkar Travels Inc. et al, (ONSC) R. v. Atlantic Technologist Limited et al, (NLPC) [24] The Defence relies on: R. v. McCullough, 2002 CarswellSask 424, 2002 SKQB 242, 221 Sask. R. 131

[25] A conviction involving a breach of trust has typically carried with it a period of incarceration. One of the primaryconsiderations has to be whether or not the complainant/victim can be returned to the position he or she was in, prior to the breach oftrust. In the instant case, neither party is suggesting that a conditional sentence would be appropriate. This is supported by the steadyevolution of case law in this province where some conditional sentences were rendered but increasingly the Court of Appeal has movedaway from that alternative if the theft involves a breach of trust.

If the amount of the theft is significant and no restitution can be made,the sentence tends to increase but tends to reach a maximum of between three and four years. This is only a rough generalization as eachcase must and should be decided on its unique factual details.

Typically this type of offender has no previous criminal record andobviously any period of incarceration will have a more dramatic and perhaps deleterious effect on him or her than perhaps a person whohas previously experienced the Canadian penal system. [26] The issue of restitution is an important one although it is difficult to reconcile the concept of repaying restitution toincarcerating someone so that he is deprived of the ability to work and thereby make restitution at an earlier date.

However medieval theconcept, there are few alternatives for what must be considered a very serious offence with wide ranging ramifications for the victims ofthe fraud. Denunciation and deterrence are and must continue to be valid sentencing objectives. [27] In R. v. Gopher, our Court of Appeal canvassed the earlier decisions in Saskatchewan dealing with similar situations anddiscussed R. v. Fehr, 2001 SKCA 37, R. v. Dickoff, 172 Sask. R. 1 (C.A.), R. v. McLaren (1995), (SK KB), 135 Sask.R. 137 (Q.B.) and R. v.

McTighe, 2005 ABCA 30, in an effort to resolve the time differential in cases involving a breach of trust. Gopherpost dates McCullough a decision of our Court of Queen’s Bench by some four years. In Gopher and the accompanying cases of Nightand Moccasin, First Nations Band Counsellors were convicted of stealing in excess of $1,000,000.00 over a period of two years. Mr.Moccasin had no previous criminal record while Mr. Night had a minor record. The trial judge imposed a conditional sentence of twoyears less one day and the Accused were ordered to make restitution.

The Court of Appeal increased the sentence to three yearsincarceration and an accompanying restitution order, holding that the sentence imposed was demonstrably unfit and fell significantly outof the range for seven digit frauds by public officers. [28] In my opinion, this case because of its recency and thorough examination of the case law both in Saskatchewan and elsewherein Canada, must be considered to be the seminal authority on sentencings involving breach of trust in Saskatchewan, whether or not theoffender is of Aboriginal ancestry or not. At paragraph 39 of the decision, Mr.

Justice Richards had this to say: In a similar vein, the Supreme Court has also recognized that the more serious an offence, the more likely it is as a practical reality thatthe terms of imprisonment for an Aboriginal and non-Aboriginal offender will be close to each other or the same. See: Gladue, at para.79; Wells, at para. 42.

In my view, the sort of offence at issue here—criminal breach of trust by a public official in a position ofleadership and authority—is the sort of serious offence where, as a general rule, one should anticipate no particular difference in thelength of prison term imposed on an Aboriginal as opposed to a non-Aboriginal offender.

No community, Aboriginal or non-Aboriginal,can succeed and move forward unless its members have faith that public affairs are conducted honestly and in accordance with the law.The significance and nature of the offences at issue in this case and the overriding need to clearly denounce them and to deter similaroffences, tends to leave little room to give effect to the unique circumstances of Aboriginal offenders. [29] He then goes on to consider the appropriateness of conditional sentences both in Saskatchewan and other jurisdictions andconcludes at para. 66 with the following: This review of sentencing authorities indicates, not surprisingly, that there is no rigid set of rules which determines when a fraud orbreach of trust warrants jail or penitentiary time.

It cannot be otherwise given that sentencing decisions must be geared to the specificcircumstances of each offender. Nonetheless, the authorities do clearly reveal a general view that denunciation and deterrence are keyobjectives in sentencing these type of offences and that substantial frauds by persons in positions of trust will generally attract sentencesinvolving substantial periods of incarceration. [30] It is hard to imagine a more egregious breach of trust than the one committed by the Accused in this case. In my view, it is atriple breach of trust:

(1) he breached the trust of his long time partners in an industry where trust is the principal component and what they in effect “sell”; (2) he breached the trust of one of the firm’s most high profile and significant clients, i.e.

Mosaic Potash; and (3) he breached the trust of the regulators at the Canada Revenue Agency who trusted him to make the appropriate deductions and forward them to the CRA. [ 31 ] If one accepts that his spouse knew nothing of where the money was coming from, he has additionally breached her trust in his ability to provide a suitable and affordable lifestyle for their family which now has been dramatically altered by the scale of this fraud resulting in the sale of their principal residence. The effect of this defalcation on his business partners is impossible to calculate.

This is not a “typical” breach of trust where a single employee steals from his employer, usually a large corporation or entity with deep pockets, is then fired and prosecuted and sentenced. This breach of trust was by a long term partner at a firm of chartered accountants.

In the world of chartered accountants, personal bankruptcy is essentially inconceivable and left with this alternative, the Firm’s partners had to move quickly to satisfy the debt owed to CRA, mollify one of their largest and most important clients and assure their other clients that this was an isolated circumstance which did not reflect negatively on the remainder of the Firm.

I have read and reviewed the Victim Impact Statements and have concluded that this theft has had a profound, and long term effect on the remaining partners and is likely one from which they will never completely recover, either emotionally or financially. Their situation is additionally exacerbated by the fact that the prospect of full or even relative partial restitution is extremely unlikely.

The Accused is 57, has been stripped of his ability to work as a chartered accountant, now has a criminal record for fraud and according to both his counsel and the RCMP, has almost nothing left in the way of disposable assets. It is difficult to see how at his age and situation when released, that he will ever be able to repay more than a small fraction of the million plus dollars that he stole, presumably to finance a lifestyle that he could not afford on his partnership salary. This is not a situation where Mr.

Besler stole money to finance an advanced medical treatment for a spouse or sick child which many people could understand and perhaps sympathize with or even an uncontrolled addiction to gambling or alcohol.

He stole money to support a lifestyle, that as his counsel advised the Court, that he could not afford and so that he could essentially keep up with others who had the advantage of unlimited funds of their own. [ 32 ] There are in my opinion some mitigating factors: the Accused has no previous criminal record, the Accused was and remains a valuable member of his community, he has the support of his wife and family; despite an initial flight to Costa Rica in order to avoid the inevitable, he returned to Canada and surrendered himself to the relevant authorities and confessed his theft; he has disposed of his available assets including his house and mutual funds in an effort to reduce the amount that he stole from the Firm and he has pled guilty to what surely would have been a long and exhausting criminal process and upon his release from incarceration hopes to return to his present job in an effort to make restitution to his former partners and the CRA. [ 33 ] However, there are many aggravating factors: the Accused was in a position of trust both with his firm, his clients and CRA and he has abused that position of trust; he stole in excess of one million dollars over a long period of time by using his unique abilities as a chartered accountant to create and perpetuate an elaborate fraud and sustained it through years of creating false documentation for his firm, his clients and the CRA; the money stolen was used to essentially fund a luxurious lifestyle for himself and his family that he could not otherwise afford and not used for a unique medical situation or to support an addiction; he initially fled the jurisdiction and left for Costa Rica without any notification to his family or firm of the impending investigation and exposure of his fraud; he very nearly destroyed the very firm of which he had been a partner for many years; and the possibility of any meaningful restitution at his age and stage of life is extremely remote. [ 34 ] In my opinion, the aggravating factors in this case far outweigh the mitigating factors and my primary focus has to be on denunciation and deterrence to others who may be tempted to commit a similar offence.

In my opinion a fit and proper sentence is three years in a federal facility on the fraud charge, contrary to s. 380 of the Criminal Code . In regard to the three federal charges, the appropriate sentence in regard to Count 5 would be two years incarceration plus a fine of $195,985.11; for Count 1, a sentence of one year consecutive to Count 5 and a fine of $104,111.54 and in regard to Count 8 a sentence of six months concurrent plus a fine of $16,617.16 for a total of three years, all to run concurrently with the fraud sentence and a total fine of $316,713.81.

In default of payment of the aforementioned fine, that a further sentence of six months on each of the three charges, consecutive to each other be imposed and consecutive to the sentence he has received on the provincial charge. The Accused upon his release from incarceration has a 90 day grace period with which to establish himself and thereafter the fine and restitution is payable forthwith at a rate of $500.00 per month to each of the CRA and the Firm. In the event the monthly installment of the fine is not paid, the entire amount becomes due and payable forthwith.

There is additionally a s. 738 order in favour of John J. Skilnick, Larry K. Miller, David M. Grodecki, Gary P. Kreklewich and Ken A. Moar in the amount of $163,326.36 each for a total of restitution to be paid of $816,631.80.

All surcharges to be waived in view of the Accused’s economic situation. [ 35 ] In my opinion, the sentence could have been much higher if not for the cooperation that the Accused ultimately provided in returning to Saskatchewan to deal with his issues, his subsequent cooperation with the RCMP and his partners, the sale of his remaining assets in an attempt to ameliorate his actions on the Firm and his guilty pleas.

Dated at Esterhazy, in the Province of Saskatchewan this 23 day of August, 2011. Brent Klause, J