Fake employee details were used to fraudulently obtain $196,000 from the government’s subsidy
The High Court has upheld an imprisonment sentence imposed on a man who fraudulently acquired funds from the government's COVID-19 wage subsidy scheme.
In Downey v Ministry of Social Development [2023] NZHC 2589, Nathan Downey was convicted of 14 charges of dishonestly using a document to acquire funds from the government's COVID-19 wage subsidy scheme. He was sentenced to 20 and a half months in prison after fraudulently obtaining approximately $196,000 from the government's subsidy program and attempting to secure an additional $66,781.
Downey appealed against the decision to impose a sentence of imprisonment on three key grounds. First, he argued that the sentencing judge failed to give due weight to significant mitigating factors, including his remorse, rehabilitation efforts, full repayment of the funds to the Ministry of Social Development (MSD), and his perceived low risk of reoffending. Second, Downey contended that the judge committed an error by prioritising the goals of denunciation and deterrence when sentencing him. Third, he asserted that the judge committed an error by dismissing the argument that his rehabilitation would be better achieved in the community rather than behind bars.
Before the High Court, the crux of the issue revolved around whether the sentencing judge committed an error in imposing a penalty of imprisonment over home detention.
The court noted that Nathan Downey's fraudulent activities occurred during the early months of the COVID-19 pandemic when the government introduced the COVID-19 wage subsidy—this scheme aimed to support businesses struggling due to the pandemic by providing subsidies to pay their employees.
Downey was the sole director and shareholder of Protective Systems Ltd (PSL). He submitted 19 applications for the wage subsidy between March and August 2020, even though PSL had no employees. Downey presented falsified information, including fictitious employee details and those of acquaintances, some of whom had previously worked as contractors for PSL.
As a result of these fraudulent applications, Downey received a total of $196,076. An additional $66,781 was sought but not granted. Approximately $57,000 of the subsidy paid to PSL was transferred to various contractors who had done work for the company, while the majority of the sum was used for Downey's personal expenses, which included gambling, fast food, Ubers, adult entertainment, and visits to bars and clubs.
During the District Court proceedings, the judge emphasised the severity of Downey's actions, noting that the substantial sum involved represented a significant loss to MSD and taxpayers. The judge also highlighted that most funds fraudulently acquired were used for Downey's benefit.
The court found that the sentencing judge's decision considered aggravating and mitigating factors. The aggravating factors included the calculated nature of the offence, the substantial sum involved, the breach of trust, and the exploitation of a government support program designed to help those in need.
The court further found that while the judge acknowledged Downey's guilty plea, remorse, rehabilitation efforts, and full restitution to MSD, he opted for a prison sentence, emphasising the need for general and specific deterrence and denunciation of Downey's actions.
In his appeal, Downey's defence counsel argued that the judge should have given more weight to the mitigating factors and considered the goal of rehabilitation and reintegration. They asserted that Downey's low risk of reoffending, successful participation in rehabilitative courses, and personal circumstances, including addiction issues, should have been considered more strongly in favour of home detention.
Downey's defence also contended that the judge committed an error by focusing primarily on denunciation and deterrence and failing to recognise that home detention could achieve these goals effectively. They argued that specific deterrence was not applicable in this case, and there was no need to deter the public from fraudulently obtaining the wage subsidy as the scheme was no longer available.
Furthermore, they challenged the judge's assessment of the effectiveness of rehabilitation programs in prison compared to the community, highlighting the adverse effects of incarceration on individuals.
Conversely, the respondent MSD argued that the sentencing judge correctly exercised his discretion in not commuting the sentence to home detention. They maintained that the judge's decision was principled and well-reasoned, considering the gravity of Downey's actions.
The respondent emphasised the need for denunciation and deterrence, especially in cases involving major fraud, and pointed to the significant sum involved, the premeditated nature of the offence, and the abuse of trust in their argument.
The High Court noted that the appeal was not an opportunity to revisit the case's merits but to determine whether there was an error in the judge's sentencing discretion. After a comprehensive review of the arguments and legal precedents, the court ultimately upheld the original sentence of 20 and a half months imprisonment.
The High Court gave weight to the judge's consideration of the aggravating factors and the need for deterrence and denunciation, especially in cases involving substantial fraud. The court deemed that the judge had made a principled and well-reasoned choice in imposing a prison sentence rather than home detention.
Accordingly, the court was satisfied that the sentence imposed by the sentencing judge was not manifestly excessive or wrong in principle.
