R. c. Comparelli: The Role of the Financial Reviewer in SR&ED
On December 14, 2020, the Court of Quebec delivered a ruling on a criminal case involving a Scientific Research & Experimental Development (SR&ED) investment tax credit (ITC) claim. In the case of R. c. Comparelli (2020), Justice Salvatore Mascia found the accused guilty of the following:
- Count 1: Conspiracy to commit a fraud against the government,
- Count 3: Conspiracy to commit a breach of trust, and;
- Count 4: Breach of trust by a public officer.
The accused was acquitted on the charge of fraud, and Judge Mascia stated, the charge of bribery was covered by the conviction on count No. 4. A stay of proceedings was ordered on that count.
This article will take a closer look at this case to provide the following:
- An overview of the case against Americo Comparelli. (“Defendant”)
- Key arguments & lessons learned from Justice Mascia’s ruling
R. c. Comparelli (2020): An Overview
This is a criminal case and the defendant, Americo Comparelli, was charged with:
- Count 1: Conspiracy to commit fraud against the Government of Canada’s Scientific Research and Experimental Development tax credit programme (SR&ED) for a value exceeding $5,000.00, contrary to ss. 465(1)(c) and 380(1)(a) Cr.C.;
- Count 2: Committing a fraud against the SR&ED programme, the value of which exceeds $5,000.00, contrary to s. 380(1)(a) Cr.C.;
- Count 3: Conspiracy to commit a breach of trust by a public officer, contrary to ss. 122 and 465(1)(c) Cr.C.;
- Count 4: Breach of trust by a public officer, contrary to s. 122 Cr.C.; and
- Count 6: Bribery of a public officer to procure or facilitate the commission of a breach of trust, contrary to s. 120(a)(ii) Cr.C.
Comparelli was a Financial Reviewer (FR) at The Scientific Research and Experimental Development (SR&ED) Department of the Canada Revenue Agency while also a silent partner in a private firm (Delvex) that was engaged in the business of preparing and filing claims for research and development tax credits for its clients. The Crown alleges that the defendant acted as a Financial Reviewer for two clients of Delvex; he was auditing his own clients and in exchange for his help he was paid $45,000, making him guilty of bribery. While there was no email evidence that Comparelli was more than a silent partner, the Crown alleges he used the pseudonym “Pat”. While Comparelli stood trial alone, two other CRA agents were accused of being phantom shareholders in Delvex while working for the CRA and two other individuals who ran Delvex’s operations were also accused of similar crimes. Comparelli denied all charges but did acknowledge that the cell phone number associated with “Pat” in an email was his number.
The judge examined each charge individually based on the evidence presented by both the Crown and the defence. First, the judge examined the charge of conspiracy to commit fraud. The judge used the Carter analysis when examining the evidence and stated that “there can be no doubt that a conspiracy existed to defraud the CRA”. Additionally, the judge stated, “The essential elements of the actus reus of the offence of fraud are dishonesty and deprivation.” The judge ruled that the fact that the defendant was a ghost shareholder in Delvex and also acted as a Financial Reviewer for the firm’s clients meets the fraudulent means criteria.
The judge also stated:
In the present matter the involvement of the accused in a scheme to defraud the CRA is inescapable. This conclusion takes into account (i) all the elements considered in the first and second parts of the Carter analysis and (ii) the third part of the Carter analysis where the trier of fact is entitled to consider the hearsay exception and consider the evidence of the acts and declarations performed and made by the co-conspirators in furtherance of the conspiracy as evidence against the accused. Under the hearsay exception (3rd step in Carter), I have taken into account the following:
- The numerous emails where the parties speak of embellishing or boosting the claim;
- Emails where the parties indicate a concern about avoiding certain astute RTA advisors at the CRA;
- Emails that express concern about the CRA location that will handle a claim for R & D tax credits (Montreal or Laval office of the CRA;);
- Emails indicating that the parties (including the accused) meet on a regular basis.
The judge then examined the breach of trust charge. In light of the essential elements for corruption set out in Boulanger, the judge determined that the defendant met the first three elements: (i) the accused was an official; (ii) he was acting in connection with the duties of his office; and (iii) he breached the standard of responsibility and conduct demanded of him by the nature of his office (i.e., the conflict of interest is obvious). Additionally, the judge looked at how the defendant’s conduct represented a serious and marked departure from the standards expected of a Financial Reviewer. The judge ruled that it did not matter that no errors were found in the defendant’s review of Delvex’s clients, he was auditing his own clients and it was improper rising to the level of criminal.
The judge then examined the committing a fraud against the SR&ED programme charge. The judge ruled that the defendant “only held a position that created the potential for abuse. However, the evidence does not support the view that his conduct or his actions created deprivation or the risk of deprivation.” The fraud charge was dismissed.
The breach of trust charges were examined next. The judge ruled that the defendant met the first three criteria for corruption set out in Boulanger:
(i) the accused was an official; (ii) he was acting in connection with the duties of his office; and (iii) he breached the standard of responsibility and conduct demanded of him by the nature of his office (i.e., the conflict of interest is obvious).
The judge then examined the defendant’s conduct to see if it was a serious and marked departure from the standards expected for a Financial Reviewer. The fact that he acted as a Financial Reviewer for two of Delvex’s clients and thereby auditing his own clients. The judge ruled “This conduct is so beyond the pale that any reasonable person would instantly identify it as improper no matter how great the integrity of the auditor. Moreover, the egregious nature of the accused’s conduct rises to the level of criminal behaviour.” The fact that no errors were found in the review of these files does not excuse the defendant. The judge ruled that the defendant had the motivation to receive a financial benefit from Delvex and was guilty of breach of trust and conspiracy to commit a breach of trust.
Justice Mascia’s Ruling: Key Arguments & Lessons Learned for Financial Reviewers and SR&ED
There is one key takeaway that stands out regarding the filing of SR&ED claims.
- Conflict of Interest: The accused was a Financial Reviewer at the CRA and he was found to be a ghost shareholder in a private firm which prepared and filed SR&ED claims for its clients. The accused acted as a CRA Financial Reviewer for two of this firm’s clients. Judge Mascia found him guilty of conspiracy to commit fraud, conspiracy to commit a breach of trust, and breach of trust of a public officer. No errors were found on his reports or work, however, this did not excuse the obvious conflict of interest, and the resulting breach of trust.
As government employees, CRA financial reviewers are held to high standards and are expected to manifest the core values of the CRA while conducting any CRA business. The Taxpayer Bill of Rights, explains that all taxpayers can expect due process when they deal with the CRA. Due process means treating the claimant with courtesy, respect, and fairness while applying the legislation and CRA policies correctly. A key principle of due process which was missing, in this case, is listed in the CRA’s Financial Claim Review Manual – Review procedures for financial reviewers:
8. Our decisions are fair and impartial and reflect current legislation and policy. (Taxpayer rights Nos. 1, 8)1
The actions of the financial reviewer in this case opposed the four enduring values which guide the CRA: integrity, professionalism, respect, and collaboration.2 The financial reviewer failed to maintain the integrity and professionalism required of his role as a CRA official. Reviewers working the SR&ED division at the CRA should not be a partner of an SR&ED consulting firm, there is a clear conflict of interest that goes against Government of Canada policies.
To view the ruling in its entirety please see R. c. Comparelli (2020).