Behind the $430m Wickenby saga Part 1
Wickenby: when push-back comes to shove (Part 3)
A FINANCIAL REVIEW INVESTIGATION
Neil Chenoweth, Hannah Low and Fiona Buffini
When Project Wickenby prosecutors got bogged down in a morass of overseas court battles, tax treaties and legal standards, they sought to change the Foreign Evidence Act.That provoked an equal and opposite reaction – a formidable challenge that raises questions about bipartisan support and the very future of the tax investigation itself.
Neil Chenoweth, Hannah Low and Fiona Buffini report in the third and final part of a series.
The Project Wickenby investigators were almost too successful for their own good.Floods of overseas documents highlighting potential tax evasion were hitting the Attorney-General's Department by the end of 2008, but prosecutors were struggling to find a way to use the foreign court documents in cases against alleged offenders.
The solution was highly political and risky. Attorney-General Bob McClelland proposed laws to give judges freedom to decide whether to accept the foreign documents. But Wickenby had created a wave of resentment in its big-name targets, as well as other critics of its sweeping information-sharing powers.
This is where they would draw the line. The resulting public debate drew in contributions from low-profile law firm Speed and Stracey, best known for its tax work for Westfield and the Lowy family, and a Queensland tax barrister with Liberal Party links, David Russell, QC. The ensuing controversy overturned the bipartisan support Wickenby had enjoyed since it began in 2004. Subsequently the Crime Commission dropped its investigation of Paul Hogan and John Cornell.The Australian Securities and Investments Commission dropped its investigation (unrelated to Wickenby) of businessman Trevor Kennedy and former cabinet minister Graham Richardson. More, it cast a political shadow over the inquiry's future and the Australian Taxation Office may face an uphill battle to extend funding for Wickenby beyond 2013.
The Opposition Leader, Tony Abbott, declined last week to say whether he supported Wickenby or how he viewed the operation.He told The Australian Financial Review through a spokesman that an audit by the Australian National Audit Office into Wickenby's effectiveness "will assist in informing the opposition's view" on Wickenby's future.
Since Wickenby went public with the raids in June 2005, lawyers, accountants, and business people have argued their case in the media that the Tax Office, the Australian Crime Commission and the Federal Police have overstepped their mark. "It has been interesting how hard and ferociously there has been some push-back from the people involved," tax commissioner Michael D'Ascenzo told the Joint Committee on Public Accounts in Canberra last March.
Behind closed doors, lawyers and potential targets have also tried to lobby politicians to muzzle Wickenby. In late 2006, when Glenn Wheatley faced the prospect of criminal charges, he reached out to the one man he believed could help him – his old friend treasurer Peter Costello. Wheatley had known Costello for 20 years – the treasurer had even dined back stage with Wheatley at a John Farnham concert at Rod Laver Arena several years before. Wheatley told Costello that he had taken some bad advice but he was willing to pay the tax he had evaded, to endure the media barrage and to warn others of the dangers of offshore tax schemes.
"What I was asking, in essence, was just not to be sent to jail," he writes in his book, Facing the Music.
Wheatley wanted to talk directly to the Justice Minister, senator Chris Ellison.Costello promised to see what he could do, Wheatley says.Costello called back later that night to say he couldn't get involved but that the then head of the Director of Public Prosecutions, Damien Bugg, would be in touch – though Bugg did not call. Costello declined to comment. By 2008, when Wheatley finished his 15-month prison term – the last five months in home detention – most of the Wickenby and offshore tax headlines were about Hogan's court battles, arrests of Vanuatu tax promoters and Peter Lowy's appearance before the US Senate permanent subcommittee on investigations, where he refused to answer questions about the Lowy family's Liechtenstein holdings. But a bigger issue was looming for Wickenby.Its investigations had produced hundreds of requests to foreign governments for business records.The treaties to obtain the material had taken decades to finalise.
Records requested under the treaties took years more to arrive.Switzerland, for example, offers three levels of appeal courts to challenge the release of documents. It was a race against time.As Liechtenstein whistleblower Heinrich Kieber told Wickenby chief Michael O'Neill: "You don't have time to get an answer [from a foreign country], and you wait two years and the man is already dead, whatever.
He's gone.That's the problem, and they know that, and they take advantage of it because the government bodies are always years behind because you cannot act as fast as the money can run." Now Wickenby was finding that, even when the documents finally arrived in Australia, half of them could not be used because they were produced for different legal systems and so did not conform to the range of evidentiary standards used in different states.
Of the 73 cases on foot where Australia had received documents from foreign governments, 45 per cent of the cases were inadmissible, and another 8 per cent could be used only because Australian officials had flown to the foreign country to oversee how the material was prepared.Hundreds more document requests were on the way, and half of them would be useless.
The solution, Attorney-General Bob McClelland told parliament in December 2008, was to amend to Foreign Evidence Act to allow judges more discretion to decide whether to accept business records forwarded by foreign governments, such as account statements produced by major international banks, even though local laws might mean bank officers would not sign an affidavit to identify the record.
McClelland's amendments were retrospective – otherwise none of the material already gathered could be used.And he flagged that more changes were needed. McLelland's push prompted tax lawyer Malcolm Stewart to write an article in the Thomson Weekly Tax Bulletin on January 9 sounding the alarm.
Stewart has an impressive reputation as a litigator and in handling tax audits for clients.His firm, Speed and Stracey, is one of Sydney's best connected, with a string of high-profile clients, but shuns publicity.Its partners are known for their public advocacy – senior partner Robin Speed, in addition to acting as tax counsel for the Lowy family companies, is secretary of the Lowy Institute and established the Graham Hill award for work improving tax laws. The chief focus of Stewart's article was not the amendments themselves.The real worry, he suggested, was what McClelland might introduce next, and the implications not just for tax avoidance but also tax challenges unrelated to Wickenby-style cases. There was "a real concern . . . that this is the beginning of a process whereby such evidence will also be able to be admitted in Part IVC disputes", Stewart wrote. Another Speed and Stracey partner, Daniel Appleby, is a member of the taxation committee of the Law Council of Australia. On January 15 the newly appointed LCA president, John Corcoran, wrote to McClelland citing the concerns of the Criminal Law Liaison Committee about the amendments.
However the coalition backed the reforms.Foreign records were a vital component of transnational money-laundering and fraud cases, and the opposition spokesman for justice, Susan Ley, said: "Those cases should not be jeopardised by inconsistencies between Australian jurisdictions as to how or whether that evidence is received by a court." Another Liberal, Peter Slipper, also noted the bipartisan support for the bill, which "builds on the work of the Howard-Costello government . . .
It is one of those items of legislation which ought to become law sooner rather than later".The amendments gained unanimous approval in the House of Representatives and were passed on February 5, 2009. The bill passed its first reading in the Senate later that day. But Stewart's article and Corcoran's letter had been passed to Joe Catanzaritti, the president of the Law Society of NSW, who wrote to McClelland on February 6. It was perfect timing for Queensland Liberal Party vice-president David Russell, QC, who has acted in several Wickenby court cases, to call the well-regarded shadow attorney-general, fellow Queenslander George Brandis, about the amendments.
Russell told Brandis his concerns could best be explained by two lawyers who would see him later that day, Robin Speed and Daniel Appleby of Speed and Stracey. What they told him – and more importantly the heavyweight support they had managed to mobilise in the Law Council and the Law Society of NSW – convinced Brandis he should think twice about the amendments bill. These lawyers were perfectly within their rights to make submissions about proposed changes to the law in their own areas of expertise. Brandis had the bill referred to the senate standing committee on legal and constitutional affairs on February 20 and the original amendments were doomed.
"Do I smell a rat?"Liberal Senator Guy Barnett asked in the committee hearing, zeroing in on Labor's intentions about Wickenby. "There is a lot riding on it.They have hundreds of millions of dollars expended to try and track down, again, hundreds of millions of dollars in tax fraud and so on.Frankly, it seems on a knife edge from what we have been reading in the Financial Review and other places."
All of Wickenby's funding to date had come from Costello, but Barnett used the inquiry as an opportunity to attack the Labor government. Little reference was made to tax in critical submissions to the committee from the Law Council, the NSW Law Society, even from David Hicks' lawyer, David McLeod, who warned the committee that business records could be extracted by torture. Kennedy's lawyer, Leon Zwier of Arnold Bloch Leibler, warned in a submission to the committee that the amendments "set a dangerous precedent" and were "the thin edge of the wedge" that "may lead to cases of serious injustice".
The government members of the committee went into damage control, producing a report recommending drastic revision of the amendments, but even that was not enough to satisfy the opposition, which wanted the bill referred to the Australian Law Reform Commission – a process that can take years.
"The Labor majority of the Senate committee agreed with some of the concerns raised during the inquiry and the government subsequently withdrew the bill and reintroduced it in substantially amended terms," a spokesman for Abbott told the Financial Review. In fact it dragged on until May last year, when Brandis announced that, with a few minor concessions, the amendments now "would not seem to make any substantive change to the law" and consequently had his support.He particularly thanked Russell, Speed and Appleby, "who were instrumental in identifying the practical shortcomings of the bill in its original form".Whether or not this arose from the revision to the amendments, within days ASIC dropped its investigation of Kennedy and Richardson and their Swiss Offset Alpine links, citing difficulties with foreign evidence.
On November 24 Crime Commission chief John Lawler dropped the ACC's investigation of Hogan and Cornell, also citing problems with foreign evidence, "based on the material that's come from overseas – you understand the complexities of obtaining that and how it's obtained . . . and also the legal professional-privilege claims [on documents]".
Despite the setback to McClelland's original plan for the Wickenby investigators to gain easier admission for offshore records, D'Ascenzo offers muted praise of the amendment bill: "It has made it a bit easier for us." He says the failure of the original amendments "undoubtedly" would have affected some cases, leaving the ATO to try to work around the holes with other evidence it had gathered. But nothing has been heard of the further changes to the Foreign Evidence Act foreshadowed by McClelland – which the opposition says it would block.
"If the government is proposing further amendments to the Foreign Evidence Act, the Coalition continues to argue that the amendments should first be referred to the Australian Law Reform Commission," Abbott's spokesman says.
The adroit campaign by three Speed and Stracey partners to fight the amendments was unrelated to any of their clients, Speed says.He told the Financial Review in an email: "Speed and Stracey had and has no clients subject to Project Wickenby (the Lowy family are subject to tax audit but are not part of that project)."
The Lowy family had not benefited from the outcome, he says. Further: "The 2008 bill and the 2010 bill do not relate to the admissibility into evidence of the material stolen by Heinrich Keiber." He did not respond to questions about whether the firm had supported political parties.The firm's website lists Malcolm Stewart's recent experience as acting in investigations such as "tax evasion (Operation Wickenby-ACC)"."When Malcolm Stewart and I saw the 2008 bill we formed the view that it had no application to any of our clients," Speed says.
There was nothing improper in his firm's lobbying efforts: "The problem was that the House [of Representatives] was not made aware of the failure to consult or to refer the proposed amendments to the ALRC."
The Lowy family declined to comment.In California, Peter Lowy has had partial success pursuing a Freedom of Information application in the courts, seeking copies of all correspondence and documents that the Internal Revenue Service has received from the ATO, in particular any reference to the head of Wickenby, Michael O'Neill.
In late 2008 Speed and Stracey launched the Rule of Law Institute of Australia, a $2 company owned by Robin Speed and Bruce Stracey.Its chief executive is veteran lobbyist Richard Gilbert, the former head of the Investment and Financial Services Association.He has made RLIA one of the most effective lobbyists in Canberra, focusing much of its efforts on calls to rein in the information-sharing powers of ASIC, the ATO and Wickenby.
"The views expressed by the institute are not the views of the clients of Speed and Stracey, nor do we get paid by its clients for expressing our views," Speed told the Financial Review last year. "All our work [for RLIA] is pro bono.
"We certainly do not canvass the views of any of the clients before deciding to take up an issue.I am sure that some of our publicly expressed views would be strongly contested by the Westfield Group, Mr Lowy and most of the other clients." Despite the anti-Wickenby lobbying in Canberra and the media last year, the investigation did not figure in the federal election last year – except in two cases that went under the radar.
On August 2, Abbott flew to Cairns to launch his $62 million tourism policy at local tourism success Jim Wallace's Green Island Reef Cruises. Abbott appeared oblivious to media reports several weeks before that had linked Wallace to a $40 million freezing order in the Federal Court obtained by Wickenby investigators.In an affidavit filed in the NSW Supreme Court, the NSW Crime Commission had accused Wallace, with his friend, former broker Tom "Black Cat" Klinger, and others, of conspiring to pervert the course of justice in a multimillion-dollar tax scheme.
They have now settled with the Tax Office. On August 14 Abbott flew to Perth to the cliffhanger seat of Hasluck to launch his mining policy at Barminco, a contract mining business whose former accountant, Trevor Thomson, had been jailed for more than three years, only three months before, for his part in a $57 million tax fraud. Justice John McKechnie found that Barminco's founders, Peter Bartlett and Ron Sayers, had saved $24 million tax through a scheme with Swiss group Strachans that was cleared by two QCs' opinions.(Bartlett and Sayers made a tax settlement in 2008 estimated at $50 million).Justice McKechnie said that Thomson and tax lawyer Greg Dunn had panicked in 2002 when an unexpected $8 million profit by Barminco risked drawing the ATO's attention to the scheme.
McKechnie painted a vivid picture of how Thomson and Dunn used the whiteboard in the Barminco boardroom to outline the elaborate steps taken to forge documents and falsify minutes, with old pens and aged paper, to hide Barminco's profit – all to prevent the Tax Office questioning the early Strachans scheme. Now Abbott was sitting in Barminco's boardroom (the business is now held in a new company) sipping a cup of tea as he railed against the evils of paying too much tax.
According to a Federal Court judgement in March this year by justice Tony Siopsis, in December 2009 Bartlett was summonsed to be questioned by the Australian Crime Commission.ACC documents stated that Bartlett was suspected of being involved in tax fraud, though he was asked only about gifts he made after his selldown of Barminco.He vehemently denies any tax fraud.
Last August, two days after Abbott's visit, Bartlett's lawyers were in Federal Court seeking to block the ACC from passing the Tax Office a transcript of his interview. Was Abbott aware of the Wickenby links when he chose the site to talk about tax? "The Coalition strongly supports the presumption of innocence," his spokesman says.
"Project Wickenby was not discussed at either of these visits." The head of the Director of Public Prosecutions, Chris Craigie, SC, has notched up a significant head count.To date 18 people have been convicted under Wickenby.Another 40 people are awaiting trial, and D'Ascenzo foreshadows up to 200 more to be charged. In February Project Wickenby opened 529 new tax audits on "high risk" taxpayers identified as being involved in tax schemes via client lists obtained from accountants or identified by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
The blitz in February represented a quarter of total audits in the previous five years. D'Ascenzo says the new investigations are aimed at people who did not come forward during the one-off amnesty that ended last June. But the future for Wickenby is by no means certain. The Australian National Audit Office is pursuing its review of Wickenby's effectiveness.
Last month the Commonwealth Ombudsman opened an inquiry into claims by Hogan that tax officers had destroyed documents in his case. Hogan has maintained an unrelated media attack on Wickenby, which he accuses of singling him out as a celebrity scalp. For Director of Public Prosecutions head Chris Craigie, the problems with using business records obtained from foreign governments remain.
"If you think about it, it's an inherent difficulty, that if you've got procedures and regulatory norms applying in this country . . . and you spread your investigative and prosecutorial net outside the bounds of that system, unless you're prepared to make adjustments within the courts, respecting fairness and respecting the norms of the rule of law, you're going to face real obstacles once people go overseas to avail themselves of different systems," he says. "So, yes, I think there's going to be an ongoing discussion in that area."
For D'Ascenzo, the issue for the Tax Office is integrity and credibility. "People can use the media and other processes and they can say a whole lot of things, but our secrecy provisions mean we can't respond. "We are public servants, we don't have a personal stake in the outcomes here, so it's a question of who the public wants to believe." nchenoweth@afr.com.au HLow@fairfaxmedia.com.au fbuffini@afr.com.au
PAUL HOGAN I hate bullies, and that's what these people are. These are arrogant bullies used to making people roll over. They've declared me a criminal all around the world and I can't call them a pack of boofheads. It was like they were saying 'Up yours'.I never wanted special treatment but that's what I am getting. It's only a couple of arseholes who treated me badly.They're not going to trap me there again.
They wouldn't dare.They let me out because of the bad publicity. It is just so un-Australian. Whatever happened to this country?Whatever happened to a fair go? I can't pay 10 per cent of it, and if they keep me here, seize whatever assets I have . . . they can declare me bankrupt.
ANDREW ROBINSON Paul Hogan's lawyer We submit that the lack of procedural fairness engaged by the commissioner has now been so complete that our clients have been denied any opportunity to respond in any fair manner to the allegations of the commissioner.
This complaint follows our complaint about destruction of evidence, which in our view is the worst manifestation of the commissioner's desire to deprive our clients of documents to enable our clients to prepare objections
JUSTICE PERRAM In various cases involving Paul Hogan I have found this document to be nearly impenetrable…Anyone who seeks to wrestle with the mysteries of the proposed further amended statement of claim will see that it is more akin to a Chinese puzzle box than a succinct statement of the applicants' cases.Pleadings in judicial review proceedings are not to be drawn by the ritual incantation of words such as 'unlawful' and 'procedural fairness' without a concomitant grappling with the doctrines upon which such allegations rest.
The present proceedings have been brought by Messrs Stewart, Hogan and Cornell.The notion of a party seeking to stay his own proceedings has an air of the novel about it. There was before him an extensive submission of a detailed nature which set forth what, at least on its face, appeared to be suspected conduct of Mr Cornell (and Messrs Hogan and Stewart) which, if accepted, might constitute grave tax fraud.
ATO adds 500 to Wickenby probe
Audits target accountants' client lists ; D'Ascenzo raises pressure after amnesty
Fiona Buffini and Neil Chenoweth
The Australian Taxation Office is investigating an extra 500 people suspected of hiding money in offshore tax havens, in a significant ramping up of Project Wickenby audit activity. The new investigations represent a 24 per cent rise in the number of audits launched during the five-year multi-agency tax evasion probe and are aimed at people who did not come forward during the one-off amnesty that ended last June.
"It's a very significant ramping up of inquiries of people either transacting with high-risk haven areas or who have been involved in schemes," the ATO's head of serious non-compliance, Michael Cranston, said.Tax commissioner Michael D'Ascenzo has put pressure on staff to expedite the reviews since the end of the voluntary initiative, which promised reduced penalties and interest if people came forward, and netted $110 million in revenue. "There's nothing worse than saying 'come in, put your affairs in order, we'll be fair and reasonable .
. .' [and] if you say that, and a few people still keep their heads down, well we have to follow up and say, 'well if you don't want to do the right thing there will be consequences'," Mr D'Ascenzo said. In February, 529 audits and risk reviews were launched into Wickenby clients, who were identified as being involved in tax schemes via client lists obtained from accountants or were identified by the Australian Transaction Reports and Analysis Centre (AUSTRAC) as transacting with high-risk tax havens.
Project Wickenby will have spent $430 million by the end of fiscal 2013. It has launched more than 3300 investigations so far and collected $250 million in cash and $300 million in a "compliance dividend", the extra revenue from the improved behaviour of Wickenby targets and their close associates.
"In terms of the performance indicators for government, for both phases one and two, overall we will meet and better that by a substantial amount," Mr D'Ascenzo said. Cash collections are running about $20 million behind target, however the project is on track to meet a budgeted cash collection of $310 million from audits and has exceeded the $260 million target for the compliance dividend.
While Wickenby has issued $1 billion in assessments to date, $500 million is under dispute and $250 million is in money stashed offshore, owed by bankrupt taxpayers or is otherwise bad or doubtful. The deterrent effect of Wickenby cannot be measured, but the ATO said the latest AUSTRAC forecasts showed it was making inroads.
Those figures forecast an 80 per cent fall in funds flowing to Liechtenstein this financial year, a 50 per cent fall for Vanuatu, and a 22 per cent fall for Switzerland, compared with 2008.Analysis also shows a 15.8 per cent decline in fund flows to 13 tax haven countries.
"I don't know whether you can directly attribute it to Wickenby, but it's an indicator of the broader impact," the commissioner said. "What we can't measure, which is the important part about Wickenby, is the deterrent effect, stopping Australians getting into these arrangements who otherwise would have." Among other Wickenby benefits, he counts legal changes that make it easier for law enforcement agencies to share information, simplify the use of foreign evidence in court, and put pressure on countries to share tax information via 27 new information sharing treaties.
Funding for the joint Wickenby project expires in 2013 but Mr D'Ascenzo said the types of risks uncovered would remain a permanent focus for the ATO. "If there is no further funding, we would have to divert our own resources from some other activities to this area while the risk is still there and we still think there is a risk there that needs to be handled . . . we need to keep a close watch on it."
The joint project has $75 million left to spend. "As funding draws out we have to be very careful in how we use those resources to make sure we target the areas of highest risk.
From an ATO perspective, even without extra funding, it's on our radar as a risk rating so we will still be using substantial ATO resources, the question is how many more in terms of prosecutions, AFP [Australian Federal Police] investigations, ACC [Australian Crime Commission] work can they do, and that has to compete against other threats to criminality."
Crown prosecutor Chris Craigie, SC, said it was a question for government whether Wickenby could be entrenched as a permanent process, but the arguments in favour were strong.
"A policy decision has to be made about continuing the funding, about continuing the capacity.I think this is worthwhile work, the Australian community benefits from it and there are powerful arguments; it speaks of justice in the form of equity and it speaks to the government about the protection of the revenue and its capacity to serve the community."Is Wickenby be a good thing, undoubtedly.The arguments in favour of it are quite strong but someone else will have to make the decision.
"Ninety per cent of Wickenby activity is in audits – there are now 3300 in the pipeline compared with 62 people charged so far.
"What is interesting is we've now reached the stage where after a lot of investigative activity the prosecutions are really getting up a head of steam," Mr Craigie said. He emphasised that Wickenby schemes were very different to tax avoidance.
"I'm not talking about the kinds of academic discussions you get that very much focus on the viability of structures, I'm talking about criminality, where someone signs documents that are plainly false and misrepresent what is going on, and become part of a structure that is plainly a fantasy when you look behind it, on the basis that a professional says to them, 'I know this is for tax purposes'.
"You state that something is when it isn't and having an expert or an accountant say to you 'this is OK, it's just for tax' is plainly dishonest and criminal and juries don't seem to have a particular problem with accepting that for what it is. It's a con and it's a con on the Australian people once you strip it away."
The prosecution of tax fraud was "very much part of the genes" of the Office of the Commonwealth Director of Public Prosecutions. "We regard it as one of the shop windows of our expertise, our service to the community and it's very important work and we hope it will continue for some considerable time."
Non-disclosure threatens tax fraud case Part2?
Non-disclosure threatens tax fraud case
Fewer tax cheats, but they’re paying back more
The Australian Taxation Office’s tougher stance on tax fraud has netted fewer cheats than before, but payments made to recompense for their wrong have soared.
