Billionaire mining boss says it was ‘regrettable’ he didn’t disclose overseas revenue to ATO
MinRes scheme enriched execs, allegedly at investors’ expense
Former Mineral Resources chairman Peter Wade failed to disclose a 10-year tax evasion scheme established by billionaire managing director Chris Ellison that enriched the pair and three other founding executives but cost the mining company’s shareholders more than $7 million.
Mr Wade was a key member of the MinRes board audit committee from 2006 to 2011 but did not disclose that the five senior executives were using a British Virgin Islands-domiciled company to buy machinery with shareholder funds and on-sell the equipment to the West Australian iron ore and lithium miner at a high mark-up.
Peter Wade and Chris Ellison. Michaela Pollock
On Sunday evening the current MinRes chairman, James McClements, confirmed revelations in AFR Weekend of the tax evasion scheme operated by Mr Ellison, which ran from 2003 to 2014. The group’s billionaire founder described his actions as a “serious lapse of judgment”.
Mr Ellison said he had since made a settlement with the Australian Taxation Office and all outstanding tax had been paid. Mr Wade did not respond to questions from The Australian Financial Review.
Mr McClements, who sat on the MinRes audit committee from 2015 to 2021, said the board was using an external law firm to investigate the matter. But he denied that the chief executive’s actions were improper and said directors had “full confidence in Mr Ellison and his leadership of the MinRes executive team”
From May 2003 to 2009, MinRes staff would buy machinery both for mining clients and the group’s own use, but paperwork would later show the equipment was actually purchased by Far East Equipment Holdings Limited. Far East would sell crushers, ball mills, batching plants and other equipment to MinRes companies for multiples of the original cost, and MinRes would then use the inflated purchase price to claim depreciation in its tax returns.
While Far East operations ran down after 2009, the unreported profits continued to be accessed until 2014 by the five executives through “children accounts” set up in a Hong Kong bank general account.
In the three years after MinRes floated in July 2006, the secret company banked $6.6 million in profits from the scheme, documents prepared by the ATO show. Mr Wade, who was chairman from 2008 until March 2022, reaped 10 per cent of the gains – or $663,000.
In that period, as the payments to Far East became a secret drag on the company’s earnings, MinRes reported combined net profits of $111.6 million. In 2007 alone, MinRes reported $20.2 million net profit after it funded Far East’s $1.8 million windfall.
Mr McClements dismissed suggestions that shareholders were out of pocket, linking the group’s payments to Far East to sales contracts made before MinRes’ $108 million initial public offering in July 2006.
“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,” he said.
However, ATO documents seen by the Financial Review show that after the IPO, Far East continued to acquire machinery, which was resold to MinRes.
In another example, a MinRes subsidiary bought a used crusher in 2004 for $250,000, which was stockpiled in the Philippines. But the paperwork showed that it was actually acquired by Far East, which in 2008 sold the crusher to MinRes for $2 million for a project that was not in existence at the time of the IPO.
Rise of a miner
The blunt-speaking Mr Ellison has become one of Australia’s richest people on the back of the mining services group he founded in 1992.
Since he listed MinRes on the Australian Securities Exchange in 2006 he has grown it into a $9 billion business, loading up debt to become Australia’s fourth-largest iron ore miner and a major lithium investor. Falling commodity prices have recently brought him back to earth, wiping 42 per cent from his market cap since May.
The MinRes managing director is still the company’s biggest shareholder with 11.5 per cent.
Mr Wade joined Mr Ellison in 1999 and became managing director in 2006. In late 2019, while Mr Wade was chairman, he and the four others who shared the profits from Far East began discussions with the ATO to confess their multi-million-dollar scheme.
At the time, the executives feared the Far East transactions were about to be revealed. Their voluntary disclosure was conditional on the ATO agreeing to discount any penalties by 80 per cent, and assurances it would not refer the matter to other regulators. The Financial Review has obtained an ATO analysis of the material provided by Ellison.
The Financial Review can also reveal that in June 2022 the current MinRes board was alerted to Mr Ellison’s and Mr Wade’s involvement in the transfer pricing scheme through an anonymous whistleblower complaint that was forwarded to the new chairman, Mr McClements, and to non-executive directors.
“Since MIN listed in 2006, these men [Ellison and Wade] have received unreported benefits of millions of dollars at the cost of MIN shareholders,” the whistleblower wrote.
“The MIN shareholders have a right to know the senior leaders in charge of the multibillion-dollar business are guilty of illegal conduct where they have personally profited at the expense of the MIN shareholders.”
ATO documents obtained by Financial Review detail multiple payment instructions that Mr Wade and another executive sent to the financial services group BoardRoom Corporate Services, which administered the Far East bank accounts in Hong Kong.
ATO documents show that $214,000 was transferred into a sub-account for Mr Wade in a Hong Kong bank on December 6, 2007. A further $188,000 was paid into his sub-account on January 30, 2008, and $290,000 was paid on September 8, 2008.
The September payment was just four months after Mr Wade was appointed executive chairman on May 12, 2008, while he continued to serve as managing director.
At the same time he was receiving these funds, Mr Wade had critical roles in determining how the MinRes board audited the group accounts and detected irregular transactions.
After the float
After MinRes floated in July 2006, the board announced in each annual report until 2011 that it “considers an internal audit function is not necessary due to the nature and size of the company’s operations”.
The lack of internal audit officers put the onus to uncover any financial irregularities on the four-man board, which included Mr Wade and Mr Ellison, and on the audit committee, which was made up of Mr Wade and independent director Joe Ricciardo (and from 2008 independent director Mark Dutton, who chaired the committee).
The audit committee was formally advised on the accounts by the chief financial officer and by the managing director, who was Mr Wade. He held the managing director role until September 2012, continuing on as chairman.
As directors, Mr Wade and Mr Ellison had a fiduciary duty to inform the rest of the board and shareholders of their connection to Far East – apart from any other consideration they were related party transactions. But no disclosures were made to shareholders.
With Mr Wade holding multiple hats as chairman, managing director and member of the audit committee, only the external auditor, RSM Bird Cameron Partners, might have been considered to have been truly independent.
Yet even there, responsibilities overlapped. In 2007-08 RSM Bird Cameron’s audit arm was signing off on MinRes accounts at the same that its tax team was representing Mr Ellison, who was facing a tax audit from the ATO.
In January 2011, when Mr Ellison’s daughter, Kristy-Lee Craker, registered her company Ship Agency Services, which went on to become the MinRes group’s preferred ship agent, RSM Bird Cameron was listed as the registered office.
Mr Wade stepped down from the audit committee in 2014, before returning for a seven-month stint in late 2020. He resigned as chairman in March 2022.
The Fair East transactions came to light after the executives became concerned in December 2019 that the payments were about to be exposed. Mr Ellison engaged Sydney accountant Christopher Batten to approach the ATO to offer voluntary disclosure of the offshore deals.
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 “law enforcement agencies … [including] the Australian Securities and Investments Commission, the Australian Federal Police and the office of the Director of Public Prosecutions”, Mr Batten wrote in a letter to the ATO on January 14, 2020.
On February 4, the ATO replied 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.
The ATO expected that Mr Ellison’s tax advisers would disclose “approximately $10 million in income from Hong Kong previously not disclosed by five individuals resulting from transfer pricing concerning mining equipment ... excess depreciation claims ... [and] a finding of evasion resulting in amended notices of assessment issuing of the income years 2005-200? [sic]”.
It wasn’t until May 2021 that Mr Ellison’s advisers delivered the first tranche of documents to the ATO. More documents followed in September, then in January 2022.
In a document obtained by the Financial Review, the tax commissioner concluded this year that one of the executives involved in the scheme exhibited “behaviour that amounted to evasion for the income years ending 30 June 2004, 30 June 2007, 30 June 2008 and 30 June 2009”.
Neil Chenoweth is an investigative reporter for The Australian Financial Review. He is based in Sydney and has won multiple Walkley Awards. Connect with Neil on Twitter. Email Neil at nchenoweth@afr.com.au
WiseTech and MinRes join growing list of governance casualties
Elizabeth Knight
Business columnistBillionaire Richard White’s personal controversies have finally started to bleed into the affairs of his company, WiseTech Global, with investors fearful that White’s Lothario-type behaviour may force him to step back from running the $36 billion company.
That fear triggered a multibillion-dollar rout in WiseTech’s share price on Monday and, perversely, the collapse is a testament to the importance of White to the company.
As far as the market is concerned, there is no WiseTech without White. It’s the textbook definition of “key man risk”, one that is likely to now put the tech company’s board under severe pressure to act.
Linda Rogan is challenging a bankruptcy notice issued by Richard White.Credit: Nick Moir and Oscar Colman
The scandal engulfing White began a few weeks ago and initially involved one allegation in a Federal Court dispute that he expected sex from beauty entrepreneur and Real Housewives of Sydney contender Linda Rogan in exchange for business advice.
The allegation was salacious but, in a corporate sense, seemed containable. However, new allegations of inappropriate advances on LinkedIn published by Nine on Monday added a serial flavour to the allegations about White, which had been contained in an affidavit by Rogan, who is applying to toss out bankruptcy proceedings brought by White.
To ignore the new claims from other women — one of whom branded White the “LinkedIn Lecher” — is no longer an option for the WiseTech board. It released a statement on Monday stating it was reviewing the full range of matters outlined in the media and “taking external advice”.
Sure, the alleged scandal is personal in nature but captains of industry need to exercise judgment, particularly if they are responsible for listed companies and are investing shareholders’ capital.
But how the board deals with White is quite the dilemma. As the founder and brains behind WiseTech, and its largest shareholder, White enjoys asymmetric power. Directors and shareholders may not approve of how he conducts his personal life, but an extended fall in WiseTech’s share price will shred their hip pockets – and shareholders will hate that even more.
Until this scandal exploded, WiseTech shareholders had experienced a dream run with the company’s share price up 122 per cent year-on-year. White has been lauded as an Australian tech success story, creating and leading the premier software provider for global logistics, a niche but critical cog of the global economy.
And White isn’t the only Australian founder/billionaire to be exposed this week for controversial behaviour. The board of heavyweight miner Mineral Resources has confirmed it is investigating revelations by The Australian Financial Review that its founder, mining mogul Chris Ellison, had once operated an offshore tax evasion scheme.
Richard White and Chris Ellison are under heavy fire.Credit: Dominic Lorrimer, Trevor Collens
Mineral Resources shares dived by almost 13 per cent as Ellison admitted to a serious lapse of judgment. In Ellison’s case, the board is firmly sticking behind its man, declaring full confidence in him despite being in the throes of an external investigation.
Both White and Ellison are, according to the market, the crucial driving force behind the success of their respective businesses. But questions must be asked about whether the respective situations playing out at WiseTech and Mineral Resources add to the general and growing distrust of big business by the broader community.
For months, the big end of town has been defending itself against anti-business sentiment, much of which has been intensified by Canberra politics. The community’s faith in institutional business class is being sorely tested, and these latest alleged lapses of judgment from White and Ellison will now add more fuel to the fire.
Last week the corporate regulator successfully alleged that Harvey Norman had been misleading customers by promoting interest-free and no-deposit payment methods without disclosing that customers could only access those methods by being a Latitude GO Mastercard holder.
And then there is the tawdry Super Retail saga, which escalated last week when the Australian Securities and Investments Commission (ASIC) confirmed it would investigate the company in response to a multimillion-dollar legal action claiming bullying and victimisation of two female staff, and an affair between its chief executive and a human resources manager.
Closer to home, Nine Entertainment’s cultural shortcomings were laid bare last week. An external report revealed uncomfortably high levels of bullying, harassment and abuse of power, complete with shocking anonymous quotes from dozens of current and former employees.
It’s a list of governance nightmares that’s seemingly growing longer by the minute.
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