I’m a tax cheat, admits Mineral Resources managing director Chris Ellison
MinRes board investigating Ellison’s alleged tax evasion scheme
Mineral Resources chairman James McClements has confirmed that the board is investigating revelations that managing director Chris Ellison operated an offshore tax evasion scheme that the group’s billionaire founder described on Sunday as a “serious lapse of judgment”.
In a statement, Mr McClements said the board had engaged outside legal counsel and that the investigation of the scheme, which The Australian Financial Review revealed on Saturday, was “well advanced”.
Mineral Resources founder and MD Chris Ellison. His disclosure to the ATO was on condition that the Tax Office would cut any penalty payments by 80 per cent. Trevor Collens
But he denied that Mr Ellison’s actions were improper and said the board “has full confidence in Mr Ellison and his leadership of the MinRes executive team”.
Mr Ellison has become one of Australia’s richest people largely through his 11.5 per cent stake in the $9 billion iron ore and lithium miner he established in 1992.
The alleged scheme involved a company that Mr Ellison incorporated in the British Virgin Islands in 2003, Far East Equipment Holdings Ltd.
Tax Office documents obtained by the Financial Review show Far East reported $6.6 million in profits from MinRes payments in the three years after the July 2006 float, which acted as a drag on shareholder earnings.
As to his private tax matters, Mr Ellison self-reported to the ATO, repaid amounts owed and disclosed these matters to the board.
— MinRes chairman James McClements
From May 2003 to 2009, MinRes staff bought machinery but paperwork later showed the equipment was purchased by Far East Equipment Holdings Ltd. Far East would sell crushers, ball mills, batching plants and other equipment to MinRes companies for multiples of the original cost, and the West Australian mining company would then use the inflated purchase price to claim depreciation in its tax returns.
The windfall profits were shared between Mr Ellison and four other senior executives.
Mr McClements described the payments as sales contracts settled before the July 2006 initial public offering. However, Tax Office documents also record changes in the offshore structure well after the IPO date, as well as machinery purchased by Far East using MinRes funds, and additional MinRes payments to other companies in the British Virgin Islands controlled by Mr Ellison.
“Since its IPO in 2006, payments made by MinRes to offshore entities connected with Mr Ellison related to pre-IPO sales contracts that were recognised as liabilities in the company’s financial statements at the time,” Mr McClements said.
The MinRes chairman characterised the scheme as a private tax issue for Mr Ellison, with no reference to other executives.
“As to his private tax matters, Mr Ellison self-reported to the Australian Taxation Office, repaid amounts owed and disclosed these matters to the board. While this does not diminish what happened, Mr Ellison profoundly regrets his errors of judgment
‘Lapse of judgment’
Mr McClements did not state when the board learned of Mr Ellison’s offshore arrangements. However, the settlement required MinRes to repay an estimated $3 million in depreciation claims which it had booked against the inflated prices paid to Far East.
Mr Ellison promised to repay this amount when he settled with the ATO, but the process would have required the knowledge of MinRes officers and auditors. This suggests that the board could have learned of the offshore arrangements by 2022 or even earlier, though no public disclosure was made.
Mr Ellison, in a statement released minutes later, said that before MinRes listed, “we also operated entities overseas for acquiring mining equipment and parts to import into Australia and on sell. Some equipment, prior to MinRes’ listing, was sold to our then-privately owned Australian businesses.
“Regrettably, revenue generated by the overseas entities that we were beneficiaries of was not disclosed to the Australian Taxation Office at that time. This was a poor decision and a serious lapse of judgment.
“I have since voluntarily disclosed these matters to the ATO in full. All outstanding tax, penalties and interest that should otherwise have been paid by me has been fully repaid, and the matter has been settled with the ATO.
“These circumstances have also been disclosed to the MinRes board.”
MinRes did not respond to questions about the external law firm used for its review. Documents show leading Perth firm Bennet+Co was an adviser to Mr Ellison in his negotiations with the ATO.
The alleged scheme came to light after Sydney accountant Christopher Batten contacted the ATO in December 2019 with an offer of voluntary disclosures for five MinRes executives. At the time, some of the executives feared that details of the Hong Kong bank accounts, which had been set up for them to access the Far East profits, were about to be exposed.
The disclosure was on condition that the ATO cut any penalty payments by 80 per cent, and that tax officers agreed not to refer the information to other law enforcement agencies.
On February 4, 2020, the ATO told Mr Batten that “the Commissioner will agree not to refer the disclosure to other government agencies” if the matters were not the subject of a current investigation.
