R v LO

On 6 October 2006, Frederick Lo (“the offender”), pleaded guilty to the following four counts in an indictment: “1. On or about 22 November 1999, at Sydney in the State of New South Wales, did, with intent to obtain for CIC Insurance Limited (“CIC”) a financial advantage namely authorisation from the Australian Prudential Regulation Authority (“APRA”) for CIC to continue business as an insurer, make a statement in writing to APRA, namely a Certificate of Reporting Approach and Compliance and accompanying yearly statutory accounts and statements for CIC, which was false or misleading in a material particular and was made with reckless disregard as to whether it was true or was false or misleading in a material particular. 2. Between about 12 May 1999 and about 24 May 2000, at Sydney in the State of New South Wales, did, with intent to obtain for CIC Insurance Limited (“CIC”) a financial advantage namely authorisation from the Australian Prudential Regulation Authority (“APRA”) for CIC to continue business as an insurer, make statements in writing to APRA, namely Quarterly Statement of Assets and Liabilities for CIC for the periods ending 31 March, 30 June, 30 September and 31 December 1999 and 31 March 2000, which were false or misleading in a material particular and were made with reckless disregard as to whether such statements were true or was false or misleading in a material particular. 3. On or about 26 May 2000, at Sydney in the State of New South Wales, with intent to obtain for FAI Insurances Limited (“FAI”) a financial advantage namely the avoidance of the risk of calling in of amounts owing under Notes issued by FAI as part of the US$150,000,000 Domestic and Euro Medium Term Note Programme, made a statement to officers of Westpac Banking Corporation, namely words to the effect “management of HIH Group is not able to produce consolidated accounts of the FAI Group for the financial period ended 30 June 1999 because the company structure has changed, the accounts cannot be reconstructed and it would be too costly” which he knew to be false or misleading in a material particular. 4. On or about 19 October 2000, at Sydney in the State of New South Wales, as an officer of HIH Insurance Ltd (“HIH”), was reckless and failed to exercise his powers and discharge his duties for a proper purpose in that he signed a letter dated 18 October 2000 addressed to Noteholders, who had purchased Notes issued by FAI Insurances Ltd (“FAI”), a subsidiary of HIH, pursuant to a US$150,000,000 Domestic and Euro Medium Term Note Programme (“the MTN Programme”) which contained a misleading statement.

Counts 1, 2 and 3 (“State offences”) constitute breaches of s 178BB of the Crimes Act 1900 (NSW), whereas count 4 (“Commonwealth offence”) is an offence by virtue of s 184(1) of the Corporations Act 2001 (Cth).

The maximum penalty prescribed for each offence is five years imprisonment and/or, in the case of offences under the Corporations Act 2001 (Cth), a fine of $20,000. The facts

An agreed statement of facts in relation to counts 1 and 2 was tendered. I have annexed it to these remarks as Annexure A. I do not propose to read the Statement of Facts, which is well known to the parties in this matter.

The agreed statement of facts in respect of counts 3 and 4 is Annexure B to these remarks. Again, I do not propose to read the facts. They are well known to the parties.

I have relied upon those agreed statements when considering the objective criminality of the offender which is relevant insofar as I have to determine the appropriate sentences. Principles of sentencing

For the purposes of sentencing the offender for the State offences, I am to have regard, inter alia, to the following provisions of the Crimes (Sentencing Procedure) Act 1999 (NSW ) : “3A Purposes of sentencing The purposes for which a court may impose a sentence on an offender are as follows: (a) to ensure that the offender is adequately punished for the offence, (b) to prevent crime by deterring the offender and other persons from committing similar offences, (c) to protect the community from the offender, (d) to promote the rehabilitation of the offender, (e) to make the offender accountable for his or her actions, (f) to denounce the conduct of the offender, (g) to recognise the harm done to the victim of the crime and the community. … 5 Penalties of imprisonment (1) A court must not sentence an offender to imprisonment unless it is satisfied, having considered all possible alternatives, that no penalty other than imprisonment is appropriate. 21A Aggravating, mitigating and other factors in sentencing (1) General In determining the appropriate sentence for an offence, the court is to take into account the following matters (a) the aggravating factors referred to in subsection (2) that are relevant and known to the court, (b) the mitigating factors referred to in subsection (3) that are relevant and known to the court, (c) any other objective or subjective factor that affects the relative seriousness of the offence. The matters referred to in subsection 21A are in addition to any other matters that are required or permitted to be taken into account by the court under any Act or rule of law. (2) Aggravating factors The aggravating factors to be taken into account in determining the appropriate sentence for an offence are as follows: (a) the victim was a police officer, emergency services worker, correctional officer, judicial officer, health worker, teacher, community worker, or other public official, exercising public or community functions and the offence arose because of the victim’s occupation, (b) the offence involved the actual or threatened use of violence, (c) the offence involved the actual or threatened use of a weapon, (d) the offender has a record of previous convictions, (e) the offence was committed in company, (f) the offence involved gratuitous cruelty, (g) the injury, emotional harm, loss or damage caused by the offence was substantial, (h) the offence was motivated by hatred for or prejudice against a group of people to which the offender believed the victim belonged (such as people of a particular religion, racial or ethnic origin, language, sexual orientation or age, or having a particular disability), (i) the offence was committed without regard for public safety, (j) the offence was committed while the offender was on conditional liberty in relation to an offence or alleged offence, (k) the offender abused a position of trust or authority in relation to the victim, (l) the victim was vulnerable, for example, because the victim was very young or very old or had a disability, or because of the victim’s occupation (such as a taxi driver, bank teller or service station attendant), (m) the offence involved multiple victims or a series of criminal acts, (n) the offence was part of a planned or organised criminal activity. The court is not to have additional regard to any such aggravating factor in sentencing if it is an element of the offence: (3) Mitigating factors The mitigating factors to be taken into account in determining the appropriate sentence for an offence are as follows: (a) the injury, emotional harm, loss or damage caused by the offence was not substantial, (b) the offence was not part of a planned or organised criminal activity, (c) the offender was provoked by the victim, (d) the offender was acting under duress, (e) the offender does not have any record (or any significant record) of previous convictions, (f) the offender was a person of good character, (g) the offender is unlikely to re-offend, (h) the offender has good prospects of rehabilitation, whether by reason of the offender’s age or otherwise, (i) the offender has shown remorse for the offence by making reparation for any injury, loss or damage or in any other manner, (j) the offender was not fully aware of the consequences of his or her actions because of the offender’s age or any disability, (k) a plea of guilty by the offender (as provided by section 22), (l) the degree of pre-trial disclosure by the defence (as provided by section 22A), (m) assistance by the offender to law enforcement authorities (as provided by section 23). (4) The court is not to have regard to any such aggravating or mitigating factor in sentencing if it would be contrary to any Act or rule of law to do so. … 22 Guilty plea to be taken into account (1) In passing sentence for an offence on an offender who has pleaded guilty to the offence, a court must take into account: (a) the fact that the offender has pleaded guilty, and (b) when the offender pleaded guilty or indicated an intention to plead guilty, and may accordingly impose a lesser penalty than it would otherwise have imposed. … 23. Power to reduce penalties for assistance provided to law enforcement authorities (1) A court may impose a lesser penalty than it would otherwise impose on an offender, having regard to the degree to which the offender has assisted, or undertaken to assist, law enforcement authorities in the prevention, detection or investigation of, or in proceedings relating to, the offence concerned or any other offence. (2) In deciding whether to impose a lesser penalty for an offence and the nature and extent of the penalty it imposes, the court must consider the following matters: (a) the effect of the offence on the victim or victims of the offence and the family or families of the victim or victims, (b) the significance and usefulness of the offender’s assistance to the authority or authorities concerned, taking into consideration any evaluation by the authority or authorities of the assistance rendered or undertaken to be rendered, (c) the truthfulness, completeness and reliability of any information or evidence provided by the offender, (d) the nature and extent of the offender’s assistance or promised assistance, (e) the timeliness of the assistance or undertaking to assist, (f) any benefits that the offender has gained or may gain by reason of the assistance or undertaking to assist, (g) whether the offender will suffer harsher custodial conditions as a consequence of the assistance or undertaking to assist, (h) any injury suffered by the offender or the offender’s family, or any danger or risk of injury to the offender or the offender’s family, resulting from the assistance or undertaking to assist, (i) whether the assistance or promised assistance concerns the offence for which the offender is being sentenced or an unrelated offence, (j) the likelihood that the offender will commit further offences after release. (3) A lesser penalty that is imposed under this section in relation to an offence must not be unreasonably disproportionate to the nature and circumstances of the offence.”

In respect of the Commonwealth offence, I am to have regard to the following provisions of the Crimes Act 1914 (Cth ), in particular: “16A Matters to which court to have regard when passing sentence etc. (1) In determining the sentence to be passed, or the order to be made, in respect of any person for a federal offence, a court must impose a sentence or make an order that is of a severity appropriate in all the circumstances of the offence. (2) In addition to any other matters, the court must take into account such of the following matters as are relevant and known to the court: (a) the nature and circumstances of the offence; (b) other offences (if any) that are required or permitted to be taken into account; (c) if the offence forms part of a course of conduct consisting of a series of criminal acts of the same or a similar character—that course of conduct; (d) the personal circumstances of any victim of the offence; (e) any injury, loss or damage resulting from the offence; (f) the degree to which the person has shown contrition for the offence: (i) by taking action to make reparation for any injury, loss or damage resulting from the offence; or (ii) in any other manner; (g) if the person has pleaded guilty to the charge in respect of the offence—that fact; (h) the degree to which the person has co-operated with law enforcement agencies in the investigation of the offence or of other offences; (j) the deterrent effect that any sentence or order under consideration may have on the person; (k) the need to ensure that the person is adequately punished for the offence; … (m) the character, antecedents, cultural background, age, means and physical or mental condition of the person; (n) the prospect of rehabilitation of the person; (p) the probable effect that any sentence or order under consideration would have on any of the person's family or dependants. … 17A Restriction on imposing sentences (1) A court shall not pass a sentence of imprisonment on any person for a federal offence, or for an offence against the law of an external Territory that is prescribed for the purposes of this section, unless the court, after having considered all other available sentences, is satisfied that no other sentence is appropriate in all the circumstances of the case.” The nature and objective circumstances of the State offences Counts 1 and 2

The objective criminality of the offender in relation to Counts 1 and 2 derives from his failure to correctly classify the pledged CIC assets and exclude them from the “Quarterly Statement of Assets and Liabilities” and “Certificate of Reporting Approach and Compliance”. The ability of an insurer in Australia to carry on business is dependent, inter alia, on compliance with minimum solvency requirements under the Insurance Act 1973 (Cth). Unless accurate disclosure is made to APRA the capacity for effective regulation of an insurer is removed and the protection intended to be provided to shareholders and policy holders may be lost.

Although the agreed facts raise the possibility that the offender may have known that Quarterly and Annual returns were not correct, the offender is to be sentenced on the basis that he was reckless in signing CIC’s Quarterly and Annual returns when he was aware of the possibility that the assets, pledged by CIC to support the Cotesworth Letters of Credit, had to be excluded for solvency purposes. Furthermore, he made no independent enquiries to satisfy himself as to the accuracy of the information in the returns and did not seek the advice or assistance of APRA.

Where representations of this nature have been made without an honest belief in their truth, rather than with actual knowledge of their falsity, the facts require careful consideration. The objective criminality of the offender will depend upon the facts of the case, the nature of the representations made, the degree of recklessness involved and the ambit of the loss occasioned.

In the present case by incorrectly treating the fixed interest securities, which had been pledged to Westpac and Société General to support the underwriting obligations of the Cotesworth syndicates, the available assets attributed to CIC were overstated, effectively misrepresenting a deficiency as an apparent surplus.

The gravity of the offences is demonstrated by the following matters: a) the offender was familiar with and understood the provisions of the Insurance Act 1973 (Cth), in particular, the minimum solvency requirements, the need to lodge quarterly and annual returns and the need to disclose and exclude assets charged for the benefit of third parties. He had developed considerable experience with compliance issues; b) at all relevant times, the offender was responsible for signing all returns for HIH licensed entities; c) the offender was involved in giving instructions to Westpac to structure the Letter of Credit to support the Cotesworth syndicates so that 50% would be secured, an amount representing a substantial proportion of CIC’s assets; d) the offender was aware that the securities had been secured by way of pledge. He had also received legal advice that such pledges created a charge over securities. Furthermore, he was also aware that the pledged assets were not merely contingent liabilities, as had been suggested by Mr Fodera, the Chief Financial Officer of HIH, but nevertheless proceeded to sign the returns despite reservations he had harboured.

The offender has a degree in Economics and also has considerable experience in areas of insurance-related and corporate finance. The incorrect classification of the pledged assets and his failure to make diligent inquiries to remove any doubts or reservations, constitute a serious breach of trust and of the duties which attach to his position as a company secretary of a large public company.

The Crown does not contend that these offences caused the collapse of HIH. The offender was not a controlling mind of HIH or its subsidiaries. Furthermore I accept that the corporate environment meant that he was under pressure, especially from Mr Fodera, to carry out his functions as Mr Fodera and Mr Williams desired. To do otherwise would probably have cost him his job. Nevertheless the following statement by Wood CJ at CL when sentencing Mr Cassidy, a director of HIH, is of relevance: “Notwithstanding the foregoing, a significant responsibility rests upon directors of insurance companies to ensure that there is a complete and accurate compliance with the requirements arising under the Insurance Act. Policy holders, share holders, and APRA are entitled to expect nothing less, since upon the honesty, integrity and competence of such officers depends the viability of the insurance industry, upon which so many commercial and other activities are in turn reliant. The duties which arise in this respect are an incident of the overriding obligation which is imposed on all company directors to act with proper diligence in the discharge of their office, at the pain of prosecution if they deliberately or recklessly abandon that duty.” ( R v Cassidy [2005] NSWSC 410 at [18] per Wood CJ at CL)

The touchstone of the offender’s criminality in relation to counts 1 and 2 is recklessness, not embezzlement or some form of deceitful self-enrichment. However, there can be no doubt that the fixed interest securities pledged to Westpac and Societé General, should have been treated as having been charged or charged for the benefit of a third party. In the result the value of the available assets was overstated by $129 million creating an apparent surplus of $17,139,000 when the true position was a deficit of $111,861,000. Count 3

This offence relates to steps taken to conceal from noteholders under the MTN Programme the breach of undertakings, which required group shareholders’ funds be maintained at a level not less than A$200 million. It was a further condition of the MTN Programme that FAI provide annually to Westpac (as agent for the noteholders) its group consolidated accounts for distribution to the noteholders.

HIH deprived Westpac (as agents for the MTN Programme noteholders) of information to which they were entitled by virtue of covenants made under the MTN Programme. In the latter part of 1999 and the early part of 2000, Westpac had communicated its request for relevant FAI consolidated accounts and an “Auditor’s Compliance Certificate” to the HIH secretariat. The offender, in his capacity as company secretary, was aware of these communications. The requests were not met. Had the noteholders been given documentation, including the group consolidated accounts, as required under the MTN Programme contractual obligations, they would have had the opportunity to consider exercising their rights to recover their investments, or any significant part thereof, pursuant to the issued notes, in the event of a default on the A$200 million undertaking.

The gravity of the offence is demonstrated by the fact that: a) as company secretary of HIH, the offender had responsibility for monitoring the MTN Programme and the loan covenants. b) he was aware that FAI had been in breach of its undertakings to ensure the group shareholders’ funds were not less than A$200 million; c) he was aware that FAI had been in breach of its undertakings to provide its consolidated (and unconsolidated) balance sheets and profit and loss accounts; d) he made a false or misleading statement to Westpac (as agent for the noteholders) by providing false reasons for the non production and disclosure of the group consolidated accounts, being that the company structure had changed and it would be too costly to reconstruct FAI’s consolidated numbers and have the accounts audited. Instead he offered to provide the consolidated accounts of HIH in lieu of the FAI consolidated accounts, together with a letter of comfort. The continued concealment of the breach by FAI of the undertaking to maintain group shareholders’ funds above A$200 million enabled FAI to avoid the risk of the noteholders acting on the occurrence of an Event of Default and presenting their notes to Westpac.

The agreed facts confirm that the offender made the statement at the behest of Mr Fodera. Although this explains why the events occurred it cannot ameliorate the seriousness of the offence. As company secretary those he dealt with on behalf of the company were entitled to be dealt with honestly and to place their trust in the offender. This offence was serious. The nature and objective circumstances of the Commonwealth offence Count 4

This offence arose from the same factual matrix as the offence in count 3, being the failure to disclose the true financial state of affairs of FAI in accordance with covenants and undertakings under the MTN Programme.

The offender’s objective criminality lies in the fact that he knowingly signed the “Letter of Comfort and Awareness” addressed to the noteholders. The letter was misleading insofar as the offender was aware at the time of signing the letter that FAI continued to be in breach of covenants and undertakings under the MTN Programme since its group shareholders’ funds were below the covenanted A$200 million.

As with the State offences, it is not contended by the Crown that the action of the offender was the cause of the collapse of HIH. Others including officers superior to the offender, were involved. However, the conduct of the offender cannot be “dismissed as insignificant or as equivalent to that of a mere amanuensis, or of someone placing his signature mistakenly on a document without any awareness of its significance” ( R v Cassidy [2005] NSWSC 410 at [33] per Wood CJ at CL).

The offence involved serious criminal conduct. The offender failed to act in accordance with the standard of corporate governance upon which the market economy fundamentally relies. In the words of Wood CJ at CL in Cassidy “it amounted to a significant departure from the exacting standards of honesty and diligence in corporate governance, upon which the market economy is reliant”. Accurate representation of the financial state of affairs of a corporate entity is of great importance not only to the parties who are immediately affected, such as shareholders or noteholders, but also to regulators, auditors and investigators who have the responsibility of checking or verifying corporate compliance. There can be no excuse for making false or misleading representations to third parties. The noteholders under the MTN Programme suffered significant losses when FAI was placed into liquidation, failing to recover any of their investment. The offender’s subjective circumstances Personal background

The offender is aged 57 years, having been born in 1949. He has no prior convictions. He graduated with a degree in Economics from the University of Sydney. From 1974 to 1984, he worked for a public accounting firm, starting as a graduate clerk and finishing as an audit manager.

In 1987 the offender commenced employment with C E Heath, the antecedent firm to the HIH Group of companies. From 1987 to 1995, he carried out a range of accounting and secretarial functions and was responsible for the production of statutory accounts and the preparation of the consolidated group accounts. In 1995, he became the company secretary for the entities in the HIH Group and continued in that role until 2001. He is currently employed as a part-time accountant for a small funds management firm.

The offender’s solicitor, colleagues, friends and family provided character references. They attest to his integrity and honesty. They also indicate that the offences were out of character and, that he has expressed shame and remorse. I accept that the offender has shown genuine remorse.

In the context of “white collar” offences, good character cannot be given undue significance as a mitigating factor: ( R v Rivkin [2004] NSWCCA 7 at [410]). Even if evidence as to character is afforded some weight, the need for general deterrence may be strong enough to outweigh good character as a significant mitigating factor ( R v Thompson (1975) 11 SASR 217 at [222] per Bray CJ). Remorse, contrition and related matters

In addition to the remorse and contrition manifested by the pleas, assistance and cooperation discussed above, the pre-sentence report of the Probation and Parole Service recorded that the offender “regrets his actions in relation to these offences and mistakenly placed the interests of the company first…that he is deeply ashamed of his involvement surrounding the collapse of the company”.

A report prepared by Megan McDonald who is a clinical psychologist was tendered. The weight to be given to its contents must be considered in light of all other relevant factors. The report refers to the offender’s “profound shame and remorse” about his criminal behaviour. Ms McDonald concludes: “Mr Lo is struggling to deal with the moral consequences of not merely the collapse of HIH, the company, but also, in some grieving sense, the loss of HIH, his corporate “family”. …… [H]e is now dealing with the unpleasant reality that his unquestioning loyalty, deference to authority and willingness to ‘keep his head down’ and ‘take orders’ – rather than to listen to his doubts and to ask questions – has taken him to a pass where his own integrity has been ultimately compromised” (at p 11)

The report confirms the offender’s naivety, weakness of character and chronic susceptibility to the sway of his superiors that blinded him to the necessity of bringing to bear an independence of mind commensurate with his role as a corporate officer and the duties and responsibilities attached to it. Mitigating and aggravating factors

In relation to the State offences, there are no aggravating factors by reference to those enumerated in s 21A(2) of the Crimes (Sentencing Procedure) Act 1999 (NSW). On the other hand, of those mitigating factors listed in s 21A(3), the factors specified in paragraphs (e), (f), (g), (i), (k) and (m) should be taken into account when sentencing.

Each relevant factor is discussed elsewhere in these reasons. Those specified in paragraphs (k) and (m) read in conjunction with ss 22 and 23 of the Crimes (Sentencing Procedure) Act 1999 (NSW), relate to pleas of guilty and assistance and are of particular significance to the circumstances of the offender.

In relation to the Commonwealth offence, the Court must advert to matters enumerated in s 16A(2) of the Crimes Act 1914 (Cth) for its consideration. There are no identifiably aggravating matters that affect the circumstances of the Commonwealth offence. On the other hand, a number of matters afford a basis for mitigating the severity of the sentence, especially those set out in paragraphs (f)(ii), (g), (h), (j), (k), (m), (n) and (p). Of particular significance to the offender are paragraphs (f)(ii), (g) and (h), which are concerned with the degree of contrition, plea of guilty and degree of cooperation with law enforcement agencies. These matters justify a discount of the appropriate sentence in the present case.

It will be necessary for me to comply with s 21E of the Crimes Act 1914 (Cth) and bearing in mind s 5DA of the Criminal Appeal Act 1912 (NSW) I shall specify the extent of the discount allowed in respect of future promised assistance.

In relation to the State offences I am also to have regard to s 23(2) of the Crimes (Sentencing Procedure) Act. The collapse of the HIH group was a result of a complex failure of management and corporate governance. It is not possible to identify the effect, if any, of the offender’s offending on individual victims. However, the offender’s assistance has been and is likely to continue to be of significant assistance. He has admitted his own offending and indicated his preparedness to give evidence against others. His assistance has been provided from the time efforts commenced to unravel the affairs of HIH. The offender’s family have not suffered as a result of his assistance and there is nothing which would persuade me that if sentenced to a term of fulltime custody he will suffer harsher custodial conditions. Pleas and assistance

There is no doubt that the offender has provided considerable assistance to the authorities in unravelling the affairs of HIH and its associated companies. The prosecution tendered a letter from the liquidator of HIH which explains the many and varied ways in which the offender cooperated in supplying prompt and accurate information about many corporate transactions. I am satisfied that the assistance given by the offender enabled the liquidator to save substantial costs.

A statement was tendered from Ms Lucy McCallum SC who, as junior counsel, assisted the HIH Royal Commission. Ms McCallum states that the offender was extremely helpful to the Royal Commission and was “unfailingly cooperative, polite and generous with his time.” The HIH Report acknowledges the offender’s assistance in the difficult process of reconstructing a complete set of board papers and minutes.

The offender has also offered to give evidence against others involved in the affairs of HIH. A statement from Allen Turton, the Deputy Executive Director of Enforcement for ASIC records that the offender has already provided assistance by way of statements and information in aid of investigations and prosecutions.

ASIC instituted civil proceedings against Messrs Williams, Fodera and Adler. The offender provided assistance in relation to those proceedings attending a conference with Mr MacFarlane QC, senior counsel for ASIC. Those proceedings concluded in 2002.

The offender also provided a written statement relating to Rodney Adler and Pacific Eagle Equities Pty Ltd (‘the PEE matter’). It was originally intended to call him as a witness, but by reason of Mr Adler’s plea this became unnecessary. Similarly, in relation to the prospectus for the issue of unsecured converting notes by HIH Holdings (NZ) Ltd in 1998 (‘the HIH NZ Prospectus matter’, which is yet to be heard), the offender provided a statement although the prosecution no longer proposes to call him as a witness.

In the statements relating to both the PEE matter and the HIH NZ Prospectus matter, the offender’s assistance was limited to the identification of company records. He, understandably, lacked independent recollection of the matters referred to in those records.

On 21 March 2005, the offender attended a s 19 examination in relation to a transaction involving the HIH group of companies and Allianz (‘the Allianz matter’). In connection with this matter, which is yet to be heard, Geoffrey Cohen, the Chairman of HIH Insurance Limited, has been charged. The offender is to be called as a witness in that prosecution, having already been called at the committal. His proposed evidence apparently corroborates the evidence of Mr Cassidy, the managing director of HIH Insurance Limited, and is also relevant to the conduct of Mr Cohen.

On 15 December 2004, the offender provided an induced statement relating to the treatment of reinsurance arrangements, entered into by the HIH group of companies with Hannover Re, in the HIH consolidated financial statements (‘the Hannover Re matter’, which is yet to be heard). It is alleged that the transactions were not genuine reinsurance contracts as HIH had simultaneously entered an agreement to provide Letters of Credit that had the effect of ensuring the ultimate risk continued to be borne by HIH.

The offender’s contribution in the Hannover Re matter has been of some assistance in furthering the work of the ASIC HIH Taskforce in respect of the conduct of Mr Fodera, the Chief Financial Officer of HIH Insurance Limited. The assistance went beyond the mere identification of documents to provide evidence linking Mr Fodera to certain conduct the subject of investigation. The offender is said to be prepared and able to give evidence: (a) of conversations with, and instructions received from, Mr Fodera concerning the reinsurance arrangement; (b) of what Mr Fodera told the HIH Board and certain Board committees about this transaction; and (c) how the various Board and committee meetings were not told about the Letters of Credit agreements or their effect. The prosecution intends to call the offender as a witness in this matter.

The offender has signed two undertakings to cooperate with law enforcement agencies (including ASIC, the Commonwealth DPP and the NSW DPP) on the understanding that should he breach these undertakings, the Crown may appeal against any reduced sentence he receives.

Consistent with his complete cooperation with the investigating authorities the offender offered to plead guilty to relevant charges during the course of the investigations. His plea was entered at the first available opportunity and he is accordingly entitled to the maximum discount for that plea. I accept that in all his actions the offender has demonstrated genuine remorse and contrition. This is confirmed by the Probation and Parole Service which records that the offender is “deeply ashamed of his involvement surrounding the collapse of the company.” He is also entitled to a significant discount for the assistance he has given the authorities. However, I bear in mind the remarks of Howie J in R v Sukar [2006] NSWCCA 92 with which I joined, the appropriate total discount in most cases is of the order of 40% for the plea and assistance to the authorities. The level of intense cooperation which the offender provided to the unravelling of the affairs of HIH has caused me to exceed this figure in this case. I have determined that a total discount of 50% is appropriate.

It is important that the sentences imposed, even after allowing for these favourable matters, remain proportionate to the seriousness of the offences. It must also be remembered that a discount for future assistance is often justified because of the hardship an offender is likely to suffer in prison or the impact on his family. Those matters are not present in this case. With this in mind I have determined that I should allow a discount of two months for future assistance in relation to each offence and will reflect that in the overall sentence. General deterrence

When sentencing offenders for “white collar’ offences the courts have consistently stressed the importance of general deterrence. The rationale is revealed in observations made in R v Pantano (1990) 49 A Crim R 328 at 330 by Wood CJ at CL: “Those involved in serious white collar crime must expect condign sentences. The commercial world expects executives and employees in positions of trust , no matter how young they may be, to conform to exacting standards of honesty . It is impossible to be unmindful of the difficulty of detecting sophisticated crime of the kind here involved, or of the possibility for substantial financial loss by the public … ” (emphases added)

Although general deterrence is not expressly referred to in s 16A(2) of the Crimes Act 1914 (Cth) unlike s 3A of the Crimes (Sentencing Procedure) Act 1999 (NSW), it is just as relevant for Commonwealth offences as it is for State offences where corporate conduct involves dishonesty, false and misleading statements or breaches of trust. The form of the sentence Imprisonment or otherwise

I have given earnest consideration to whether a sentence of imprisonment should be imposed on the offender and, if imposed, whether it could appropriately be suspended or served by periodic detention. Although the offender has by his subsequent conduct demonstrated remorse and complete cooperation with the authorities and, notwithstanding his good prospects of rehabilitation, I am satisfied that a term of imprisonment served in fulltime custody is the only appropriate penalty. The offender was appointed to a position of trust in which a great many people and corporations depended on him carrying out his office with honesty and diligence. He failed to meet his obligations for which he must be appropriately punished. The offences are serious. Furthermore, as I have indicated, general deterrence is a significant consideration which, in my opinion, in the offender’s case weighs heavily in favour of a term of fulltime custody. However, having regard to the many favourable aspects of the offender’s subsequent conduct, his assistance to the authorities, both in the past and prospectively, I am satisfied that he should only be required to serve the minimum appropriate period in fulltime imprisonment. When sentencing for these offences it is important to recognise that the maximum term of imprisonment provided by statute is five years. There will be very significant variations in the objective criminality of the offences covered by the section. The present offender’s crimes, although serious, were not at the highest end of the scale of offending. Comparative sentences in HIH and non-HIH matters

In the course of submissions, I was provided with an agreed schedule of sentences in other matters where HIH officers have been prosecuted together with other “white collar” offences. I have identified below some relevant principles and the assistance which is available from these decisions, recognising that each offence and offender requires unique consideration.

R v Boskovitz [1999] NSWCCA 437. Ms Boskovitz was a director and senior executive. She made false or misleading statements to 3 lending institutions. Moreover, in order to procure credit facilities, she created false impressions that did not reflect the true financial position of the company.

The Court of Criminal Appeal held that the presence of a dynamic or dominating superior’s influence or sway, particularly where “business methods employed sail too close to the wind”, cannot exculpate a corporate officer who makes false statements and engages in conduct in derogation from their responsibility to uphold honesty and truthfulness. The court determined that the offences were serious but could not fairly be regarded as amongst the worst of the kind in question to warrant the maximum penalty. They were “a little below the worst type.” There were no pleas of guilty and no cooperation. The “trial was hard fought”. Mrs Boskovitz was sentenced to 4 years imprisonment, with a minimum of 2 years 2 months and an additional 1 year and 10 months.

R v Boulden [2006] NSWSC 1274. Mr Boulden was the financial controller of the Corporate and Professional Insurance Division within FAI General Insurance Company Ltd. His role was best characterised as middle management. He fraudulently altered the books of a company, by making false entries in the ledger, thus giving rise to a false profit figure. He lied to other employees of the FAI group about the reasons for the false entries. The sentencing judge found that he failed to “resist the urgings of his superiors but went along with them, no doubt influenced by the general culture of dishonesty within the corporate group.”

The sentencing judge concluded that imprisonment was the only appropriate sentence given the offence itself was “reasonably serious” that “falls comfortably into the mid-level range of seriousness” and the criminality involved was “at a reasonably high level.” However, in light of Mr Boulden’s “demonstrated rehabilitation over a period of many years,” his “plea and his clear willingness to facilitate the course of justice” and his unlikelihood to reoffend, the trial judge was of the view that appropriate recognition of the objective seriousness of the offence could still be achieved by an alternative to fulltime imprisonment. He was sentenced to 12 months imprisonment to be served by way of periodic detention.

R v Kelly [2006] NSWSC 1142. Mr Kelly concurred with the offender’s (Lo’s) false or misleading statements that it would be too costly to reconstruct accounts in response to Westpac and noteholders’ concerns whether FAI complied with the undertaking to maintain group shareholders’ funds at or above A$200 million. He pleaded guilty at the earliest opportunity and also provided assistance and cooperation.

Mr Kelly was assistant company secretary for the HIH Group. However, he played a minor role in the events surrounding the concealment of FAI’s breach of the A$200 million undertaking under the MTN Programme.

He was sentenced to perform 500 hours of community service. The sentencing judge found that “the offence committed by the offender is qualitatively different and of a significantly lower order than other offences in relation to which sentences of imprisonment have been imposed in HIH prosecutions.”

R v Cassidy [2005] NSWSC 410. The offender’s counts 1 and 2 are identical in substance to counts 2 and 1 respectively of Mr Cassidy. The facts related to these counts are also similar. Mr Cassidy was the managing director of HIH Insurance Ltd. Like the offender, he has provided significant assistance to ASIC in their investigations and prosecutions.

The sentencing judge found that general deterrence militated against any sentence other than full-time imprisonment.

For each of counts 1 and 2, Mr Cassidy was sentenced to 9 months imprisonment. For count 3 he was sentenced to 12 months imprisonment (partially cumulative). The overall sentence was 15 months imprisonment, of which 10 months were required to be served in custody.

To my mind the sentence imposed on Mr Cassidy is the most relevant to the sentencing of the offender. However, Mr Cassidy was the Managing Director of HIH Insurance Limited and carried more significant corporate responsibility than the offender. However, the different is not of a great nature. Although less, the offender’s sentence should reflect the fact that because of his role in the company’s affairs he must carry responsibility for his serious breaches of his corporate and statutory responsibilities.

All of these decisions reflect the fact that the courts have consistently treated offences of the kind committed by the offender as serious involving as they do dishonesty in dealings with regulators or the market. In these circumstances the importance of general deterrence must be emphasised. Although the offender may not have had a policy or critical decision making function within the company this cannot mean that a sentence which does not involve fulltime custody should be imposed. It is also noted that pleas of guilty and assistance are recurrent features of the HIH prosecutions. Totality, accumulation and concurrence

The offender is to be sentenced for multiple offences to which he has pleaded guilty. A judge sentencing an offender for more than one offence must fix an appropriate sentence for each offence and then consider questions of cumulation or concurrence, as well, of course, as questions of totality.

Where there are two different sentencing regimes, each offence under the relevant regime must be considered for sentencing and the application of the principle of totality in light of the overall criminality.

Counts 1 and 2 are State offences relating to problems with the accuracy of the declaration. Sentences for these offences should be concurrent. Counts 3 and 4 are also related and in my opinion it is appropriate that they also be concurrent. An appropriate overall sentence will allow for half of the term of imprisonment for counts 3 and 4 to be served concurrently with the sentence for counts 1 and 2. There will be some accumulation between those sentences and those appropriate for the Commonwealth offence. Parole

In my opinion it is unnecessary to impose a sentence which provides for a period of parole. The offender has demonstrated genuine contrition and remorse and I am satisfied is most unlikely to reoffend. The fixed term I have in mind, whilst marking out his serious crimes, are not such as to require his supervised re-introduction into the community. His family connections remain strong. Accordingly, I see no purpose in providing a period of parole or providing that he enter into a recognizance. Imposition of sentences

Mr Lo you are convicted upon each of the counts for which you have pleaded guilty. In relation to count 1 I sentence you to a fixed term of imprisonment of six months commencing on 23 February 2007 and expiring on 22 August 2007. In relation to count 2, I sentence you to a fixed term of imprisonment of six months to be served concurrently with the sentence on count 1. In relation to count 3 I sentence you to a fixed term of imprisonment of six months commencing on 23 May 2007 and expiring on 22 November 2007. In relation to count 4, I sentence you to a term of imprisonment for six months, to be served concurrently with count 3.

The sentences are structured on the basis that the total term of imprisonment is for nine months based on my evaluation of the objective criminality, the gravity of the offences and all relevant mitigating factors.

I further indicate in relation to each offence that but for the offer to give evidence in respect of the prosecution of Mr Cohen and Mr Fodera the term of the sentence for each offence would have been eight months and the total term of imprisonment of thirteen months. In that event the sentence for counts 3 and 4 would have commenced on 23 July 2007.