In R. v. InfoSpec Systems Inc., the Court of Appeal for British Columbia overturned a lower-court fraud conviction in relation to the use of devices that were alleged to have been designed to allow businesses to under-report income and evade taxes.
This decision illustrates the dangers faced by companies that develop, manufacture and sell products that are lawful but may nevertheless be used in connection with the commission of a criminal offence. Such companies may be exposed to criminal liability notwithstanding the fact that no provisions exist prohibiting the manufacturing, possession and sale of their product. The danger lies in the ultimate use of the product and the companies’ understanding of why their product is being purchased and what the intended use of their product is.
InfoSpec is a B.C. company that developed and marketed a computer program that restaurants and retailers use to keep track of sales. It also made available a “zapper” that allows for selected cash transactions to be deleted from the sales records and that in turn allows businesses to under-report income. InfoSpec sold zappers to two businesses in Winnipeg, Manitoba, and although there was no evidence that these particular devices were ever installed or used, it was found that InfoSpec understood that the zappers were being purchased to evade taxes.
InfoSpec was charged under section 380(1)(a) of the Criminal Code (the Code), which makes it an offence to defraud the public or any person by “deceit, falsehood or other fraudulent means.” At issue in this case was the actus reus of fraud within the third head of the offence, namely other fraudulent means. The court remarked that the existence of other fraudulent means is determined by what “reasonable people would consider as dishonest.”
Justice Frankel, writing for the court, found it noteworthy that the making, possession or sale of a zapper is not prohibited by law. This is in contrast to a number of other devices, including those used to produce counterfeit money and to falsify credit cards, the manufacture, possession and sale of which is prohibited under the Code. As a result of the lawful nature of the sale of a zapper, Justice Frankel was unable to conclude that people would consider InfoSpec to have acted dishonestly and left it open to Parliament to enact provisions prohibiting such devices.
InfoSpec’s fraud conviction was set aside and an acquittal entered. However, Justice Frankel remarked that had it been found that a zapper had been used by either of the Winnipeg businesses for tax evasion, InfoSpec would be a party to fraud as a result of aiding its customer in committing that offence. In that situation, the dishonest act is not the sale of the zapper but rather its use.