@BarbaraPocock:Big questions: what was the ATO deal with MinRes? No such deal for Robodebt victims. Jail threatens those who fail to pay toll road fines - @4corners last night. But for the big end of town there are multiple roads to protection and deal making. #estimates
Five days after The Australian Financial Reviewreported that Mineral Resources founder Chris Ellison ran an offshore tax scheme for 10 years, the MinRes board is still to answer two core questions: when did they find out about it, and why didn’t they tell shareholders?
Chairman James McClement told investors on Monday that a board investigation of the matter was “well advanced”, while minimising the seriousness of the issue and expressing “full confidence” in Ellison. MinRes filed its annual corporate governance statement five minutes later.
McClement made two critical points. The first was about the $7 million profit that Far East Equipment Holdings Limited, a British Virgin Islands-domiciled company controlled by chief executive Ellison, former MinRes chairman Peter Wade and three other founding executives, racked up at the miner’s expense in the first three years after the group floated in July 2006.
McClement said that all of these payments to Far East to buy mining machinery at inflated prices – which reduced MinRes’s own profits between 2007 and 2009 by between 4 per cent and 8 per cent each year – were “related to pre-IPO sales contracts that were recognised as liabilities in the company’s financial statements at the time”.
Pre-existing contracts? It’s a difficult position to maintain given the machinery purchases and resales that Far East made to MinRes after the IPO, for projects which were not even on the planning stage when the group floated.
At a more basic level, if these were commercial transactions, as McClement maintains, then why were they not disclosed as related party transactions?
Of course, such disclosure ran the risk that the Australian Taxation Office might be able to identify the executives behind Far East. A more pressing concern would be how shareholders would react to the price gouging that they were funding, when a used crusher bought in 2004 for $250,000 was resold to MinRes in 2008 for $2 million.
McClement and the board manfully step over these difficulties to confine the issue to Ellison’s “private tax matters”.
But it’s not private. When MinRes bought the $2 million crusher from Far East (and all the other millions of dollars of gear), that’s the cost price it reported to the ATO. That’s what it claimed in accelerated depreciation.
The ATO regards Far East as a Controlled Foreign Company. That makes it an internal sale, so the tax base has to be the original purchase price.
In other words, MinRes created flawed accounts for those years, and claimed tax deductions that it wasn’t entitled to.
When Ellison’s advisers approached the ATO in December 2019 for a voluntary disclosure deal for himself and the four other executives in return for reduced penalties, they acknowledged that MinRes had made “excess depreciation claims”.
Ellison undertook to make up any tax shortfall, penalties and interest MinRes might face, which appears likely to have been several million dollars. On Sunday, Ellison confirmed that “the matter has been settled with the ATO”, which would have crystallised the MinRes tax position as well.
This makes the key question: when did current MinRes directors discover the Ellison tax scheme, and that MinRes had a tax problem?
Ellison must have finalised the tax settlement by May 2021 because that’s when his advisers began supplying documents to the ATO.
Ellison could have paid tax directly to the ATO on the MinRes account, or recompensed MinRes after it made a provision.
But in either case, MinRes officers, the board audit committee and the external auditor would or should have known about it.
In June 2022, a whistleblower emailed independent directors to allege that the Ellison-Wade offshore scheme had cost shareholders millions of dollars. Directors should now have been doubly aware of the scandal.
Ellison’s commitment to cover MinRes’s tax bill is perhaps the ultimate related party transaction, but there has been no disclosure.
McClement’s statement did not say when the board began investigating, but it appears to have been in the past few months.
Something triggered them into action. Why did it take so long to respond to a full-blown governance crisis? What finally convinced the board it needed to investigate? And why is the board still being so cagey about the details?
Ellison described his decade-long offshore tax escapade as “a poor decision and a serious lapse of judgement”. He says he has disclosed all this to the board.
A first step for the non-executive directors should be to insist that he hand over to them all the documents he handed over to the ATO, and all subsequent correspondence.
That’s just a first step. Ellison and Wade created a governance culture which depended upon keeping secrets. By failing to disclose any of this, the board cements that circle of secrecy.
While the independent directors wrestle with how they trust the CEO, the problem for shareholders is how they trust the board?
MinRes scandal anacute credibility test for Justin Langer
The Chris Ellison-led miner has collected some
big names – from the former cricketer to strategic advisor Julie Bishop. Are
they merely celebrity figurines?
Peter Ker Resources reporter
Oct 23, 2024
It’s been twenty years since Mineral Resources director Justin Langer was
infuriated by being labelled a brown nose, but as the former cricketer mulls
his response to the scandal engulfing his mining company, we are about to see
how apt that description was.
Langer was fielding at mid-on for Western Australia during a domestic
limited overs match against Queensland in 2004 when Queensland batsman Jimmy
Maher spooned him a catch off Ben Edmondson’s bowling.
Justin Langer was drafted onto the board of MinRes to rule on culture,
leadership and teamwork. Jason
South
A part-time cricket writer hired to report on the match took creative
licence a tad too far in the ball-by-ball, text commentary he was publishing on
the Cricket Australia website. “Edmondson to Maher, OUT: bit of a cross slog
straight to the brown-nose gnome at mid-on,” he wrote.
It was an uncharitable reference to Langer’s short stature and his public
reverence for the Australian cricket captain at the time, Steve Waugh.
Audience numbers for ball-by-ball text commentary of domestic cricket games
were small to non-existent in 2004, but that didn’t stop the Langer camp from
launching a nuclear strength response.
Langer’s then-manager, Robert Joske, reportedly demanded that Cricket
Australia serve up a head on a plate, while the WA coach at the time Wayne
Clark vowed to pursue the matter to the “nth degree”.
Twenty years on from gnome-gate, Langer is presented with a fresh
opportunity to prove he is not a brown nose.
Langer is now a member of the Mineral Resources board, which will have to
decide on a suitable response to the extraordinary routing of money between the
company’s Perth headquarters, companies in the British Virgin Islands and the
pockets of executives like Chris Ellison.
Just as Waugh was in 2004, Ellison is a dominant leader at MinRes; a
founder, major shareholder, managing director and talisman. Like Waugh at the
batting crease, Ellison is unlikely to walk from MinRes voluntarily.
Langer is not the only
MinRes supporter for whom this week’s scandal is a test of credibility; spare a
thought for Julie Bishop, who nine years ago as foreign minister went
to Washington and gave a speech about multinational profit shifting posing
a serious challenge to national sovereignty.
Bishop has in the past
two years been a strategic adviser to MinRes; a role that required her to
behave like a social media influencer, publishing videos that promote the new
headquarters MinRes has built beside the tiger-snake-infested swamp that is Herdsman
Lake.
The Australian taxpayer
paid Bishop’s wage over her 21 years as a member of federal parliament. For the
rest of her life she will be eligible for a six-figure parliamentary pension,
should she choose to claim it.
Given her prior
rhetoric and decades of living on the public purse, Bishop would be
hypocritical to tolerate and defend tax avoidance that takes funds away from
Australian schools, hospitals and roads, wouldn’t she?
As MinRes’ week of crisis rolls on, Bishop must be relieved she is only an
adviser to MinRes and not a director like Langer; J-Bish can hide, but JL must
pad up and face the new ball.
So far, the MinRes board seems to be backing their man, expressing “full
confidence in Mr Ellison and his leadership of the MinRes executive team”.
Langer is just one of nine members of a MinRes board that must determine a
response to the scandal. The onus to respond falls mostly on Ellison and MinRes
chairman James McClements.
But if we are to
believe that Langer was brought onto the MinRes board in January last year
because of his skills in culture, leadership and teamwork, then he must be
front and centre to the board’s response.
All the other directors on the MinRes board have an obvious area of
competence and responsibility; they’re either mining engineers, capital markets
professionals or experts in First Nations’ policy.
Langer can’t claim to have a speciality in those “hard” skills; the soft
stuff like ethics and leadership is his place to shine.
Will Langer demand
MinRes adopt the sort of “elite honesty” he wanted from the Australian cricket
team when he took over as coach in 2018 with a
mandate to fix a culture that had allowed cheating via sandpaper?
If Langer thinks
self-reporting to the Australian Taxation Office is an example of “elite
honesty”, when did he think was the right time to tell MinRes shareholders –
who only know their funds were being treated this way because of The Australian Financial Review’s Neil
Chenoweth?
As an expert on teamwork, how will Langer look MinRes shareholders in the
eye at the company’s annual meeting on November 21, now he knows Ellison and
his mates allegedly took profits for personal enjoyment that should have gone
into the company’s communal pool?
Telling Ellison, the biggest shareholder in MinRes, that he needs to walk
over these sins would be a hard choice for Langer, who doesn’t have any other
major corporate directorships.
But for Langer, it’s a
defining moment; is he merely a celebrity figurine added to the MinRes board
for star quality, just as his former cricket teammate Adam Gilchrist was at
failed Sandalwood company Quintis?
Or is he a serious
company director willing to die on the hill of culture, ethics, leadership and
teamwork? Over to you JL.
Peter Ker covers resource companies for The Australian
Financial Review, based in Melbourne.
Connect with Peter on Twitter. Email Peter at pker@afr.com