Lessons Learned - Behind the $430m Wickenby saga
Part I: Hundreds of celebrities, business people and tax specialists have been caught in Project Wickenby. Neil Chenoweth | Fiona Buffini | Hannah Low *Updated Jun 2, 2011 – 5.10pm, first published at May 3, 2011 – 12.01am Adam Hargraves isn’t formal about nightwear, so when the federal police turned up at his Sanctuary Cove home at 7am, the Porsche-loving businessman was protecting his valuables with only a throw cushion.
Twenty kilometres down the road, moments before the federal police walked in, a frantic office manager threw an accounts book out the 11th floor window.
Across the country in Perth, former rock star Glenn Wheatley was woken by a call from his wife saying more than 20 police had turned up with a warrant to search their Melbourne home and had been “literally going through everything". It was Thursday, June 9, 2005 – the day Australia’s biggest tax investigation went public.
In the six years since, Project Wickenby has split Australians. Who’s the villain here: the scheming promoters, the celebrity tax avoiders, the naive clients or, perhaps, the tax enforcers? The Australian Financial Review has talked to the players in the $430 million Project Wickenby saga, and sifted through court testimony and judgments that mark the trail of a decade-long operation.
“You could just see how easy it was for someone to come here with a laptop, sign some people on and suddenly all the documentation gets done overseas . . . there’s nothing more cancerous – once these things catch on, they become like wildfire," tax commissioner Michael D’Ascenzo recalls. “What really concerned us was there were people coming here peddling these arrangements across a broad cross-section of the community, not just high-wealth individuals," he says.
Wickenby has resulted in 2800 audits, raked in $553 million, sent 18 people to prison while 42 people wait to be tried.
In a three-part series, the Wickenby story reveals how hiding your money overseas became commonplace for a rising class of entrepreneurs; how an Australian Taxation Office operation became the centre of a global attack on tax haven bank accounts; and the attempts to pressure politicians to shut down or limit investigations.
But there are also deep fears about whether hundreds of new cases can ever be brought to trial as time runs out.
The money runs out in June 2013 – along with the legal window that allows Wickenby to operate.
Worse, the taskforce faces two official inquiries while offshore tax schemes are still growing.
The future of this new breed of inter-agency investigation is a major policy question that is the subject of extensive public debate.
Not every taxpayer targeted by Wickenby is guilty of tax crime, and it is wrong to make any assumptions about those charged until their cases are decided by the courts.
But the cases that have been before the courts build a picture of the folly and hubris that produced a train crash.
The Tax Office has identified 200 promoters of the overseas schemes but knows there are many more.
“Every couple of months you get someone coming in from Europe, they’d be involved in private banks, they’re all very smooth but they’re salesmen," one tax adviser told the Financial Review.
The master salesman, one Philip Egglishaw, first came to the attention of Wickenby insiders in 2002, but he’d been selling his wares for almost 20 years undetected for the Strachans accounting firm in Jersey he owned with his brother, Richard.
In a tough field, Egglishaw stood out to his Australian clients as the epitome of the solid English businessman – pinstripes, bowler hat, quietly exuding charm and wealth.
Sydney tax barrister Peter Fraser had known Strachans since the 1980s. “I was familiar with them and Mr Egglishaw," Fraser, a prosecution witness, told the Local Court last year.
“Mr Egglishaw used to visit Australia regularly, and when he visited he would come to see me when I was a partner at Baker and McKenzie. He acted for clients of mine."
It was “a handful of accounts over 15, 20 years – he provided trustee and accounting services and loans".
Was there ever anything untoward? “Not at all," Fraser testified.
For the senior ranks at the Tax Office – from commissioner Michael Carmody, to the man who would succeed him, Michael D’Ascenzo – and across the organisation, the bottom of the harbour schemes of the late 1970s and early ’80s had been bad enough.
Then the Costigan Royal Commission in 1984 underscored the stunning speed with which tax avoidance schemes had grown and were posing a serious threat to the tax base that runs government.
D’Ascenzo recalls the days after he began as a graduate in the Tax Office’s tax avoidance branch in 1977 chasing the “mass-marketed paper schemes", the most notorious of which were the bottom of the harbour schemes that were “attacking the system on all fronts".
“What that taught me was if you allow widespread disrespect for the tax laws, then you can’t really expect honest citizens to really shoulder that burden," D’Ascenzo says. “It forces honest citizens to rethink their position and it reduces the integrity of the country overall, in terms of its ethics and morals."
“It was almost seen as optional for rich people to pay their tax," he says. “Where respect for the law and the systems is lost, it creates a downward spiral and it took a long time for Australia to get out of that spiral."
In the late 1980s, the Tax Office had switched its attention to the big end of town, which had received little scrutiny so far, launching the large-case audit program, run by then assistant commissioner D’Ascenzo.
In 1988, the ATO raided the Sydney premises of Citibank, seizing hundreds of documents relating to a suspected tax-avoidance scheme. One of the officers was Michael O’Neill, a 23-year-old still finishing his law degree who, a decade later, would join the taskforce formed to investigate tax scheme promoters.
In 1989, one of the key Costigan reforms was realised with the formation of the Australian Transaction Reports and Analysis Centre, AUSTRAC, to monitor money laundering.
By the late 1990s, the tax avoidance focus shifted to mass-marketed tax schemes, many of them based on dubious agricultural projects, films and superannuation benefits.
They featured many of the hallmarks of tax schemes in the past: the use of overseas vehicles and tax havens, aggressive legal tactics to block the authorities, and promotion by accountants and lawyers.
That episode, which D’Ascenzo says was “disappointing", led to the creation of the serious non-compliance unit, from which Wickenby would later emerge. It is led by deputy commissioner Michael Cranston, who says the difference between Wickenby and the earlier tax schemes is stark.
“The difference with these schemes was the documentation supporting them was offshore," Cranston says. “So if this grew, it’s very difficult for administrators to actually get the information to identify the people involved and also if you needed to go to court – that was a really big concern."
Strachans, through Egglishaw, had entrée everywhere. In Sydney during the ’80s and ’90s he was a trusted contact for the chairman of the Law Council of Australia’s tax committee, Ross Seller. The Jersey businessman was also a contact for Dibbs Barker Gosling senior partner Paul Gregory; in Perth, Greg Calder of Butcher Paull & Calder and tax consultant Greg Dunn; and in Melbourne, lawyer Michael Brereton.
“I’ve got no reason to believe that anything Philip did was illegal," Brereton has told the Financial Review.
Brereton met Egglishaw in 1989 when he was a partner with Barker Gosling. “Any time I had a client going overseas who needed international advice, I’d send them to Philip," Brereton says. “I’ve always found him to be an honest and honourable professional person."
Egglishaw met the former Masters Apprentices guitarist Wheatley when he had fallen on hard times in about March 1994.
Wheatley was working for sports agent International Management Group and staged John Farnham’s hugely successful Talk of the Town tour, although most of his income went to his bankruptcy trustee.
Wheatley says Paul Gregory, who was also a director of IMG, introduced him to Egglishaw, who explained how the $256,410 that was Wheatley’s share of the Farnham tour takings could be funnelled overseas as a “management fee" to a Strachans account for Wheatley. It would be repaid to Wheatley as a loan, on which interest could was charged, though both the loan and the management fee turned out to be shams.
The Tax Office was already chasing Wheatley – he owed $180,000 from an earlier tax bill. Wheatley maintains he was never told the Strachans arrangement was illegal – in fact, he thought the 15 per cent that Strachans and Gregory charged in fees was Swiss withholding tax. He was struggling to pay private school fees for his three children but he maintains the real reason he did the deal was to pay his old tax bill.
“In my naivety, my understanding from a tax point of view was that this was not illegal, as I thought I was paying tax in Switzerland," Wheatley says in his autobiography, Facing the Music. “I was uneasy about it, but at the time I had no alternative."
In April 1994, a month after Farnham’s tour, Egglishaw’s burgeoning links to the entertainment industry led him to Tony Stewart, the Sydney accountant for Paul Hogan and his partner, John Cornell .
The Tax Office had had suspicions about whether part of the Crocodile Dundee royalties were channelled overseas, but had lost a court challenge in the late ’80s.
While the Tax Office didn’t know it, Hogan and Cornell had become Client No. 1 and Client No. 2 in the Strachan files – and in Egglishaw’s Rolodex (according to Crime Commission documents in a Federal Court case before Justice Margaret Stone).
It was so easy. Channelling money overseas as payments for what Wickenby investigators contend were fictitious invoices, sham insurance policies and pretend management fees could be done in a blink.
“All I had to do was approve it," says Wheatley. “The lawyer sent the money off, deducted his secret fee and arranged for the money to come back as a loan."
The Tax Office meanwhile was struggling to keep abreast of the endless new schemes put up by tax promoters, and court battles over whether, when they finally did get hold of documents outlining a tax avoidance scheme, they were prevented from seeing them because of legal privilege claims.
Former Commonwealth Tax Ombudsman Peter Haggstrom put it: “The doctrine of legal professional privilege acts like a `cone of silence’ against the ATO’s attempts to get to the bottom of tax transactions."
Onshore tax schemes were hard enough. But the offshore schemes were almost impossible to detect. And Egglishaw was only one of many travelling salesmen. “Everyone is doing it," an accountant told a Wickenby offender.
And what was the harm?
“You don’t think about it at the time –I don’t think we went in there thinking we were hurting anyone," another convicted Wickenby target says. “We just thought that this is how it was done. We didn’t sit around in a dark room talking about this. We were talking to accountants from reputable firms."
The offshore tax schemes appealed to John Howard’s aspirational Australia: solid, successful citizens whose businesses had suddenly taken off.
One such Sydney executive lost his job but started a rival business under his house with less than $50,000. “In the first six months, we turned over $500,000 and made profit of $40,000; we were expecting $1 million for the full year," he says. “We were panicking about paying our first lease on new grounds, we had no security."
The threat of paying provisional tax was looming. But his partner had heard about an accountant who ran an overseas scheme.
The false invoicing began in a small way. But seven years later, the business was turning over $35 million a year and the tax fraud had become huge.
Today he says he is embarrassed and financially destroyed but, like Wheatley, thinks there was no alternative: “It’s probably something that needed to happen at the time because we were unsure of our financial status. We were unclear, a bit naïve. I guess we were getting something for nothing."
Australian Crime Commission chief John Lawler is dismissive: “What’s happened is these people are sponging off the normal taxpayer. And it’s as simple and easy as that."
What do you do, Lawler asks, “if you’re a dry cleaner and you’re paying $10 million a year tax and your competitor next door is not?"
You either get forced out of business by your competitor, or you join the tax fraud set, say Wickenby investigators.
Another pair of aspirational businessmen, Glenn and Adam Hargraves, were prominent in the Mormon community at Nerang on the Gold Coast hinterland and they had big plans.
By 1999, the Hargraves’ Phone Directories Company (PDC), was doing so well in producing rival telephone directories to Telstra that Adam called his wife’s uncle, accountant John Feddema, to set up a meeting with the Sovereign Capital funding group.
The Sovereign Capital adviser suggested setting up a company in Panama and sending money to a bank in Latvia.
Feddema had another name. He faxed Philip Egglishaw’s business card to the Hargrave brothers together with a letter from Strachans to another client (Feddema had no other involvement).
Egglishaw explained to the Hargraves how it all worked. Ideally they would have a British Virgin Islands company owned by a trust. This would be controlled by a trustee company in Jersey. If it was too expensive, Strachans ran in-house companies.
By September 1999, Strachans had set up Amber Rock Ltd in the British Virgin Islands and the Gabriel Trust in Jersey for Adam Hargraves. Other trusts were set up for Glenn Hargraves and later for British-born lawyer Daniel Stoten when he took a 10 per cent stake in PDC.
“Amber Rock Ltd has been given a London address for cosmetic purposes and is effectively controlled from our office by the provision of directors and company secretary," Egglishaw wrote to Adam. “Again, you will have no relationship with the company in any way and must not be seen to have any control."
Egglishaw had provided unsigned letters of resignation for the “protector" to the trust, who controls the trustees, so that Hargraves and Stoten could seize control at any time.
By October, their new friend Philip was ushering Glenn and Adam and Daniel into the premier suite at the Brisbane Sheraton, where he and his entourage were bivouacking, and passing over the new Standard Chartered gold debit cards they could use to retrieve their overseas funds from ATMs.
The seduction was complete. It was so simple. The Hargraves’ Phone Directories Company had a Chinese firm typeset their directories for about $120,000. Amber Rock would then invoice PDC for 10 times that amount and, just like that, $1 million a year of income miraculously vanished beyond the reach of the tax man.
All of this was off the radar, because by the late 1990s, the ATO was facing a deluge of onshore tax schemes. It wasn’t just that investors didn’t pay tax, but they often claimed large deductions from non-recourse loans that meant they were extracting large sums of money from the tax revenue. They ranged from schemes within the letter of the law, to blatant shams. More worrying, by 1999, some of the tax promoters were moving their schemes offshore.
In June 1999, in addition to the Hargraves, Egglishaw was also talking to Ross Seller at Gadens and accountant Patrick McCarthy, who were getting into whisky. A lot of whisky.
Over 25 months they would raise $24.5 million cash from 190 Australian investors, who would also borrow three times as much by a letter of credit from a company called Chambers Finance. Investors would claim $46.7 million in tax refunds.
Ian Gzell, QC, (now a justice of the Supreme Court of NSW) and barrister Peter Fraser, asked to give an opinion on the whisky scheme in June 2000, concluded that “no factor is present which objectively suggests that the scheme could fall foul of the tests in Part IVA" (the anti-avoidance provisions of the Tax Act). There has been no criticism of the role either lawyer played.
Asked about the Chambers Finance loan, Fraser testified last November, “I knew it was somehow related to Strachans." He didn’t know Chambers Finance, but “if I was lending money to someone I’d certainly go into the background. If someone is lending money to me, I don’t need to go into the background."
According to documents filed with the Local Court in Sydney, Seller and McCarthy had lined up a Scottish distillery to make whisky for them at £2, or $5.15, a litre, but the investment scheme was priced at $30 a litre.
Over the three tax years, Chambers Finance was supposed to provide $73 million of loans, taking the total project to $98.9 million.
Investors would put down $125,000 cash and take a letter of credit for another $375,000 from Chambers Finance, for 100 hogsheads of whisky. They would report their $500,000 investment as a tax deduction, and claim a tax refund of $242,500 – doubling their money, though subsequent whisky sales would be taxable.
But according to the documents, the loans from Chambers Finance were never drawn down. The promoters paid Speyside Distillery $16.5 million over the three tax years. This left $8 million from the investors’ money for expenses and profits for the promoters.
And there was nothing necessarily wrong with this. They have pleaded not guilty to conspiracy and dishonestly influencing a tax officer.
By 2001 it was clear the 60,000 people involved in the onshore mass-marketed schemes had claimed $4 billion in deductions – which the Tax Office wanted back.
Early that year, the Senate Economics Committee handed down a stinging critique of how schemes had been allowed to grow out of control and called for measures to target the promoters of tax avoidance schemes. There would be changes to tax laws.
In late 2001, Carmody set up a scheme promoters taskforce, managed by O’Neill, now an assistant commissioner but still in his late 30s. O’Neill’s taskforce began by targeting a series of schemes based on films and retirement villages in Melbourne.
In Brisbane in 2002, Christopher Cornell (no relation to John) and Ian Cameron heard about a Gold Coast accountant called Ewan Stoddart who supposedly knew how to reduce tax through offshore loans. Stoddart wasn’t connected with Strachans -- he had business links in Vanuatu that the Tax Office would soon be chasing.
Cornell and Cameron decided they needed someone like Stoddart when they realised that $400,000 of unclaimed supplier rebates for their Giants liquor wholesaling business would leave the business with a huge provisional tax bill and cash-flow problems.
When they fronted Stoddart, they told the Queensland Magistrates Court, he suggested a set of back-dated invoices for the Giants business that whisked $341,000 overseas. Stoddart would keep 20 per cent and send the rest of the money back as an offshore “loan" to Cameron and Cornell, who could then loan it back to Giant.
Their new financial director, Donald Hood, told Cameron and Cornell it was illegal. He showed them the section in the Accountants Manual that spelled out the offence and the penalties. Cornell told him not to worry, Stoddart would never put them in that position.
Melbourne entertainment lawyer Michael Brereton was similarly naïve about the offshore tax scheme he’d become involved with. But Brereton and his production of the musical Jolson were among 30 tax scheme promotions under surveillance. Brereton had raised $3.2 million from high-profile investors together with letters of credit for more than $8 million from a Strachans British Virgin Islands company, Westminster Finance.
The loan meant the investors could claim back as a tax refund more than they had invested, thanks to the loan from Westminster, which could only be paid back out of the show’s profits – and unfortunately the show had flopped.
It wasn’t until O’Neill’s task force was beefed up to 55 tax officers in mid 2002 and Brereton’s marriage to Sian Stokes broke up that things came to a head.
Brereton blamed his ex-wife (though she denies this) for fingering him to the taskforce, which raided his law firm on May 22.
“Sixteen wealthy clients of another promoter visited today claimed $15 million in deductions in 1999 through a theatre scheme," the Tax Office announced.
Brereton later told journalists, “In 2002, you get a raid and that gave them the link to Egglishaw." Brereton himself would emerge unscathed.
Other Egglishaw clients were not doing so well. The Tax Office had disallowed the deductions that Seller and McCarthy’s investors were claiming on the whisky scheme.
On the Gold Coast, the Mormon Hargraves had also suffered a setback.
One of their staff, Dirk Smibert, had been a director of Phone Directories Company since 1996 and, crucially, a very devout Mormon.
The Hargraves wanted to keep Smibert on staff, and offered him a 4 per cent stake in PDC. But he balked when they explained he would have to take his dividends from Jersey in cash through an ATM.
Adam and Daniel Stoten told Smibert he was “ignorant" and that it was all “completely above board". However, on April 12, 2002, Smibert resigned.
“Admittedly, financial management is not among my talents," he wrote.
But he did not feel comfortable that Stoten had just told him that if he tried to pay tax on his dividends he could jeopardise his fellow shareholders’ tax position. “I do not want to lose what I believe I have earned and am entitled to and indeed what I have relied on, but I am prepared to if it comes to it," he added.
Smibert then went off to head a Mormon mission to New Zealand. In hindsight, the best person to recruit into an offshore tax fraud is probably not a Mormon missionary.
Actor Paul Hogan was also doing a deal that would cause him headaches.
On July 18, 2002, Hogan allegedly had a little windfall when Trelene Investments, the British Virgin Islands company set up for Hogan by Phil de Figueiredo of Egglishaw’s firm Strachans, paid $US5 million to Hogan in a “sham" transaction for the rights to make Crocodile Dundee 4. At least that is what the Australian Crime Commission would claim in a document later obtained by Hogan’s lawyers, who filed it in the Federal Court.
The ACC document says Hogan told US tax authorities he was moving back to live in Australia on July 1, but he told the Tax Office he became a resident on July 26, so he was stateless when Trelene made the payment.
By late 2002, Monaghan and O’Neill at the Tax Office had pulled together enough about Egglishaw and his relationship with Brereton to want to call in help from the newly formed Australian Crime Commission.
By May 2003, they had convinced the new head of the Australian Crime Commission, Alastair Milroy, and the ACC board to open a joint investigation with the ATO into money laundering and tax fraud.
It would begin with Brereton and Egglishaw. It was called Operation Duxford. On Egglishaw’s next trip to Australia, the Crime Commission searched his Sydney hotel room after he booked out on November 4 and found Strachans brochures explaining their tax schemes.
The circle was closing on Egglishaw’s Australian clients, but none of them was aware of this, and the deals continued.
Wheatley says he always believed that Strachans’ fees were Swiss tax. He maintained this belief even when he managed to negotiate the fees down to 11 per cent in 2003 in a deal that diverted $400,000 of his profit from a Kostya Tszyu boxing match to Switzerland. (Dibbs Barker Gosling senior partner Paul Gregory was convicted of conspiracy to defraud the Commonwealth over the Kostya Tszyu profits but was cleared of charges that he assisted Wheatley’s 1994 tax evasion.)
In early 2004, after an Australian government request, Jersey authorities raided Strachans offices in Jersey.
Philip Egglishaw walked out of Customs at Tullamarine airport on the morning of February 14 and turned on his phone, to learn of the Jersey raids from his brother, Richard. Philip headed directly to the presidential suite at Sheraton Towers Southgate, and asked for a shredder.
This is the scene that defines Operation Wickenby and almost a decade of tax investigations, as Crime Commission officer Gail McClure and her team burst into Egglishaw’s suite and seized his laptop that detailed all his Australian clients.
But the action was just beginning. Egglishaw called his brother Richard in Geneva. Strachans then began calling clients.
By that afternoon, Mormon Adam Hargraves and his lawyer Daniel Stoten on the Gold Coast had heard about the raid. They in turn called “Uncle John" Feddema, wanting more information.
The raids had interrupted Egglishaw’s plans to meet his lawyer mate Brereton in Melbourne. But Brereton had other worries as well, after Law Society of Victoria investigator Ronald Hall turned up to audit his law firm’s trust account.
Brereton had drawn $50,000 that belonged to a British Virgin Island company called Westminster Finance that had previously financed Jolson. Hall told Brereton to pay it back, which he did on Tuesday February 17 – then two days later moved it back again marked as expenses, the court later found.
Egglishaw didn’t get to meet Brereton because he was enduring a five-day interrogation at the hands of Tim Sage of the Crime Commission. He appears to have spoken freely before flying out on March 1.
Soon after his return from Australia, Egglishaw accidentally killed his hard drive on the laptop, leaving him with no record of what the Crime Commission held.
The fear of being drawn into the crackdown on Egglishaw was spreading across Australia.
On the Gold Coast, Daniel Stoten was emailing Strachans in Jersey to ask for account balances for all accounts, but got no reply.
By March 24, Stoten was in Geneva to see Egglishaw personally. Egglishaw told Stoten to stop emailing, and to communicate only by telephone. (Strachans provided its top clients with European registered phones that Australian police could not tap.)
Egglishaw also told Stoten he would have to use new Visa cards in the name of someone overseas.
Meanwhile, the Wickenby team was struggling to work through the wealth of material copied from Egglishaw’s laptop. It was the biggest single source of tax intelligence that most of the tax officers had ever seen--and unlike the 1988 Citibank raid, this time they did not have to give the documents back.
What they read there appalled them, set alarm bells ringing right up to the top of the Tax Office, to Treasury and to the Treasurer’s office. If they took hold, these schemes would go viral and there would be no stopping them.
D’Ascenzo says: “When we saw the laptop and the information that was available there, which was really ‘give me some details and I’ll give you some documentation’ – that really becomes open slather. You really have to say that is not the behaviour you have in Australia."
The head of the federal Director of Public Prosecutions (DPP), Chris Craigie, SC, says: “Wickenby when it surfaced was seen as a very serious threat to the taxation system and something that could cripple the revenue."
Tax barrister Michael Inglis says Wickenby is a far more “real time" reaction to tax crime than we have seen before, including the bottom of the harbour schemes 30 years ago, where only a handful of promoters were prosecuted eight to 10 years after the event.
“Wickenby is a modern response to a modern threat to the integrity of our entire tax system and is utterly different to anything that has gone before it," Inglis says.
Inglis, who has represented Wickenby targets, says the overseas element makes the schemes a systemic risk in the way the mass-marketed rorts a decade ago were not: “I’ve seen arrangements where you have accountants in a tax haven who are the directors, and managers of a tax haven company with millions of dollars in the bank. The company appears to be totally controlled by the accountants but a person in Australia is the only one authorised to use the bank accounts. That’s a threat and I believe they are just nibbling at the problem."
Meanwhile, how to use Egglishaw’s files? The team turned to AUSTRAC to try to trace the cash trails documented in the laptop.
The Australian Crime Commission ramped up nine investigations into clients of adviser Strachans while the Tax Office ran its own investigations into several dozen more.
The Attorney General’s Department and the DPP would set up requests for more raids in Jersey and Geneva to coincide with Australian search warrants.
None of this was apparent to Egglishaw. The ruckus over the laptop seemed to have subsided. His clients could still access their overseas cash with new credit cards issued by Corner Banca in Switzerland in other people’s names, so that there was no paper trail for the Tax Office to follow.
Egglishaw’s laptop had lists of credit card records with partially obscured names. On December 3, 2003, under the name “Jo Co" there were three withdrawals from the Brunswick Hotel, which the Tax Office would later claim in Federal Court were made by John Cornell, whose Hizan Holdings Pty Ltd owned the hotel.
For Strachans’ clients, it was business as usual – until the morning it all fell apart.
From 7am east-coast time on June 9, 2005, 285 federal police and tax officers executed 48 search warrants and the Tax Office executed 37 Section 263 access visits over two days to law firms, accountants and clients from Brisbane to Perth.
In Perth, when Glenn Wheatley put down the phone from his wife Gaynor, he phoned Paul Gregory. The senior corporate lawyer told Wheatley not to talk on the phone because it was probably bugged, and to get a lawyer.
On the Gold Coast, Daniel Stoten returned from the gym to find policemen searching his home as his wife made their children breakfast.
Stoten called Glenn Hargraves to ask the $5 million question: “Did they get the card?"
No, the Banca Corner Visa debit card was safe, Glenn told him.
“Good," said Stoten, and rang off to call Adam Hargraves. The police had not found Adam’s card either. “They really haven’t got nothin’ there then," Stoten told Adam.
The calls became a blur. Adam to Daniel again, discussing what the police had seized, and making plans to meet at Glenn’s house.
Another call. This time it was Philip Egglishaw on the line to Stoten, quietly reassuring.
Egglishaw: “They’re fishing now in Australia, because they can’t get anything from my area."
Stoten: “They’ll get bits and pieces from us, there’s no doubt. But they won’t get much."
Stoten was more worried by the time he called “Uncle John" Feddema.
Feddema: “Um, you wouldn’t have anything at home though would you?"
Stoten: “Um, I’ve just, the only, nothing at home, the only thing they got was they got the [mumbles] – the fucking card."
The Federal Police had found a Premium Intercard Visa Card in the name of Donald Ward in Stoten’s wallet in his LandCruiser.
In Adam Hargraves’s wallet they found a Visa card in the name of Gry Stenson.
They missed a third card, in the name of David Winterbottom, that Glenn’s wife Joanna Hargraves had in her handbag. Glenn told investigators he destroyed it.
At other locations, documents went down the toilet or were tossed out windows, as they were by the Hargraves’ office manager, as the mass raids created great panic.
In Sydney, tax lawyer Geoff Stein had settled in at 9am to conduct a job interview at his firm Brown Wright Stein. Then the phone started ringing. And ringing.
The job interview took two and a half hours as he was continually interrupted by panicking clients. The calls were still coming in at 9.30 that night, when Stein decided to go to a client whose business premises were still being searched.
Senior Wickenby staff were on tenterhooks as the secret raids rolled out. A casual query to the Federal Police by Financial Review journalist Angus Grigg about rumours a Perth stockbroker had been raided had Crime Commission chief Alastair Milroy on the phone within minutes, asking Grigg not to break the story.
The next day, as further raids continued, the PDC office manager on the Gold Coast told Daniel Stoten that she had looked around outside the Niecon Plaza building and had found the accounts book she had thrown out during the search. Stoten told her to destroy the book. He told another employee to wipe data: “Anything remotely connected with any of those names, get rid of [it]."
Stoten fell to worrying. He had $40,000 cash in a Commonwealth Bank of Australia deposit box. How to get it out? He didn’t want to be identified so, remarkably, he asked his brother to get him a disguise. He went to the bank in costume, only to lose his nerve when he saw police waiting outside the bank.
Stoten and his wife Katherine spoke on the phone – and they were desperate.
Daniel: “The whole point of that was because we thought that’s the way to do it so it’s legal, and this is how it ends up, it’s just really, it absolutely rocks my mind."
Katherine: “But how, how do we explain the credit card though? Like I mean, if they say to me have I seen it, yes I’ve seen the credit card, and I mean it’s in someone else’s fricken’ name, I mean how fraudulent is that?"
A jury would later convict Stoten and Adam Hargaves but find Glenn not guilty because he stepped down from the business before Smibert told them it was fraud.
Meanwhile the Tax Office, the Crime Commission, the Federal Police, AUSTRAC and the Director of Public Prosecutions were overwhelmed by a mountain of new material from the June raids.
“Wickenby was quite an extreme concern for the tax authorities because of the marketability, the ease of selling these schemes, and the ability to hide the evidence. Because of that we really needed the agencies to come together to deal with it," the ATO’s Cranston says.
D’Ascenzo says the “turning point was the ability to provide sufficient information to the government of the day to persuade them this was a sufficient risk and to fund it as a project".
But at least some of the targets of the June 2005 raids seemed nonchalant about the fuss.
Yes, Glenn Wheatley admitted, he had been raided but it was all very straightforward and he was certain nothing would come of it.
“As far as I can tell, it’s just routine and nothing else," he said. “I’m surprised this hasn’t happened earlier in my life."
News of the raids didn’t seem to faze others, such as Michael Milne, much either.
Milne had cashed out a large parcel of shares he had transferred overseas to five corporate trusts called stichtings that Sydney lawyer Anne Harley had set up for him in the Dutch Antilles.
With the shares sold by mid-2005 just before the raids, it was time to spend.
There was $270,000 for a yacht he named Black Snake, $5 million or so on houses, $71,534 for the Bentley, and $390,000 for a Jeffrey Smart painting, The New School, which looked rather fetching in his new lounge room, or so the Federal Police would comment three years later when they raided Milne’s home. He was jailed for eight years for money laundering.
Like Milne, insurance broker Charles Pratten had bought a few treats with the insurance premiums he shipped off to his company in Vanuatu, according to prosecution claims in court.
Pratten had school fees to pay, but through a web of companies he still managed to pick up a 45-foot game fishing boat, Los Lobos, a farm at Wards River and a Robinson R44 helicopter (there was some confusion as to whether he owned it personally or, as he suggested, it was part of his company’s air wing).
The Wickenby insiders were heading to warmer climes as well.
One investigation began when tax officers auditing an Australian accounting firm noticed that many of the clients were paying invoices to Vanuatu.
The Federal Police ran four separate operations investigating suspected cash transfers to and from the Vanuatu – although it’s important to note there were plenty of legitimate investments in the island.
These investigations would not come to light until 2008. As always, Project Wickenby operated in secret. But there would be a secret running behind all the other secrets – a side of the Wickenby investigation that has never been acknowledged.
It began with two strange emails. One went to British Revenue & Customs in late 2005, but they were too slow to respond. So the anonymous emailer wrote to the German secret service, the BND, in January 2006.
The emailer offered to provide detailed records for €3.5 billion in investments held in a tax haven. The writer was not seeking payment for this information, he said, but it seemed “deeply unfair that multimillionaires could continue to amass their fortunes without paying taxes".
However, he wanted far more than that. He wanted to live in Australia.
Fiona Buffini helps to drive the Financial Review's news agenda and oversees how we deliver the news on afr.com and via our other digital platforms. She is a former news editor and national reporter. Email Fiona at fbuffini@afr.com
Hannah Low writes on Business specialising in Legal. Based in our Sydney newsroom, Hannah is a Walkley Award winner and Legal editor. Connect with Hannah on Twitter.
