Court shoots down CRA investigation
Crown expected to appeal decision that puts some cases in jeopardy
Several criminal cases that stemmed from a Canada Revenue Agency investigation into tax evasion by construction companies appear to be in jeopardy because a Quebec Court judge has ruled the original probe was conducted illegally.
Judge Dominique Larochelle delivered her decision on Friday at the Laval courthouse and the written version was made public on Tuesday. The decision specifically touches on 10 cases pertaining to four accused including Laval resident Francesco Bruno, 54. His company, B.T. Céramiques, was used to inflate the expenses of other companies, through false billing, to help them reduce their reported revenues. Companies owned by construction magnate Tony Accurso during the probe were heavily fined as a result of the same investigation.
As part of her decision, Larochelle determined the evidence produced to charge Bruno and Rodolfo Palmerino, 53, a B.T. Céramiques administrator, was obtained illegally because Revenue Canada overstepped the boundaries between its ability to make auditorial verifications and a criminal investigation. Bruno’s wife, Gisella Palmerino and Alfredo Magalhaes, another B.T. Céramiques administrator, face possible fines for failing to pay taxes on revenue from the same company. The cases against both were also part of Larochelle’s decision.
In one case, Bruno faces 14 charges alleging that, between 2005 and 2007, he helped Hyprescon Inc. and Simard-Beaudry Construction Inc. (companies owned by Accurso at the time) make false declarations on taxes. While Larochelle declared the evidence in the cases against the four accused was obtained illegally she also refused a request to have the charges stayed, which means the ten cases are still pending. They return to court on Dec. 18 where the Crown is expected to announce its next step.
Christopher Mostovac, one of the defence lawyers who filed the motion that resulted in Larochelle’s decision, said he presumes that in December the Crown will ask that the case be postponed while it files an appeal. The attorney called Larochelle’s decision “rare” in how it criticizes the prosecution.
No one with the Crown was willing to comment on the decision on Tuesday, in part, because the case is technically still not over. Because Larochelle’s decision touches on the very origin of an investigation that branched off into many others, several defence lawyers are likely to scrutinize it carefully to see if it can be applied to cases involving clients who still face criminal charges. Mostovac said other defence lawyers involved in other cases that emerged from the original investigation have already expressed interest in the decision.
When the Montreal Gazette obtained its copy of the decision, a clerk at the Laval courthouse said the 55-page document was in heavy demand and that a photocopier had been running all Tuesday morning to satisfy requests for copies.
In the decision, Larochelle characterizes Canada Revenue Agency’s conduct as “highly reprehensible.” She noted the agency has the power to make verifications on the revenues of an individual, or a company, and abused it to conduct the type of police investigation where, for example, warrants would have to be authorized by a judge.
"(The Income Tax Act) accords it broad powers in terms of its application and execution. The corollary is the obligation to use it judiciously, in a transparent way and with respect to the Constitution,” Larochelle wrote in her decision.
“The case demonstrates that the investigation (conducted) under the cover of verification lasted for a year. Despite the red flags that were raised and the availability of resources, the case was not reoriented towards an investigation that respected the rules.”
Several pages of the decision describe how verifications made on B.T. Céramiques in 2007 eventually became Project Legaux in April 2008. On April 17, 2008, officials with CRA asked RCMP for assistance because they anticipated search warrants would have to be carried out. As part of its motion, the defence argued that before the RCMP was involved two different CRA divisions, one that handled criminal investigations and another to investigate fiscal matters, worked closely together, shared the same office and blurred the lines between verifications and an investigation. From the outset, Larochelle determined, the CRA investigator who started the probe, Jean-Pierre Paquette, knew what he was looking into involved allegations of corruption among CRA auditors.
One part of Project Legaux eventually became Project Coche, an RCMP investigation that produced charges against eight CRA auditors based in Montreal. One of the auditors was convicted, on June 12, on charges of breach of trust and extortion for having solicited a bribe from a restaurant owner. The now former auditor, who is appealing his conviction, is scheduled to be sentenced this month. A different case, involving three former CRA auditors, is currently at the preliminary inquiry stage at the Montreal courthouse.