There can be no doubt that the intentional suppression of sales data, whether through use of an electronic device (often referred to as a “zapper”) or through use of an eraser on the end of a pencil might constitute criminal fraud, tax evasion or both. However, as is seen in the recent case of R. v. InfoSpec Systems Inc., 2013 BCCA 333, under current law the mere possession of a computer program capable of deleting sales data or the selling of such a program is not necessarily an offence.

According to the judgment in InfoSpec, the company was in the business of developing and marketing point-of-sales computer programs for use in the restaurant and retail industry. The programs were designed to keep records of sales data. The appellate court found that the president of the company sold zappers to two restaurants knowing that the purchasers intended to use the zappers to delete sales data and evade taxes. The appellate court noted that there was no evidence that the zappers were ever used.

The company was convicted of fraud and the conviction was overturned on appeal. In arriving at the result, the appellate court observed that the law (at present) does not criminalize the production, possession or sale of zappers. Further, the court held:

“InfoSpec participated in commercial transactions involving the sale of a computer program that is not prohibited by law; the restaurants got what they paid for. Whatever reasonable people might think about the propriety of such a sale, I am unable to say they would consider the vendor to have acted dishonestly. If Parliament considers a prohibition on zappers necessary to thwart tax evasion, then it is open to it to enact a provision…”

Parliament seems to have anticipated this result because in The Federal Budget (March 21, 2013) the government has proposed both administrative monetary penalties and criminal sanctions for the possession, acquisition, development or sale of ESS (electronic sales suppression) software.

The determination of whether someone has possessed, acquired, developed or sold a specified item are bread and butter issues for the courts. What will be more interesting and potentially more difficult is how Parliament chooses to define ESS software. There are at least two potential approaches that Parliament might take: the first would be to prohibit software which is intended to be used for the electronic suppression of sales for the purpose of evading the payment of tax. The second would be to prohibit software which is designed to be used for this purpose. Each definition would present different evidentiary considerations for an investigation and prosecution.