Thursday, June 06, 2024

Poacher turned gamekeeper’: The tax commissioner’s secret money trail

Poacher turned gamekeeper’: The tax commissioner’s secret money trail 

Before he was tax commissioner, Chris Jordan was involved in a transfer from a mystery company in the Isle of Man and a casino junket venture, raising questions about whether this should have been disclosed.


            From AFR 

Neil ChenowethSenior writer
It was a week before Christmas in 2000 and KPMG partners were celebrating. They always understood the constant need to network, but more importantly they knew how to party.
Wayne Jones was hosting dinner at his home in Sydney’s Strathfield, so the midnight blue Porsche 911 Targa that had become the tax partner’s after hours signature was in the garage.
Chris Jordan rolled up in his black Mercedes. The guest of honour, Paul Keating, arrived in a Comcar, and the KPMG partners made a beeline for him.
It was so convivial. Jordan, who headed the firm’s NSW tax and legal division and was about to become chairman for KPMG NSW, crowed that both the current prime minister (John Howard) and the previous prime minister were KPMG clients.
Jones, who seemed equal parts brilliant tax lawyer and party animal, had advised Keating on his marital property settlement. Jordan was not only Howard’s personal tax accountant, he had advised on the introduction of the GST that year, for which he would earn an Order of Australia.

That night in December 2000, the boys culture at KPMG was at its zenith. A seamless mix of professional, social and political power, it would help propel Jordan 12 years later to become Australia’s first tax commissioner appointed from outside the agency, a role he would hold until he stepped down in February.

But Jordan’s legacy at the ATO now risks being overshadowed by two controversies from his time at KPMG: his involvement with Jones in a scheme to transfer more than $3 million from a mystery company in the Isle of Man; and a disastrous investment in a venture to run junkets to bring gamblers to Australian casinos.
An 11-month investigation by The Australian Financial Review has followed a paper trail of documents and transactions across numerous countries and tax jurisdictions. While the claims made about Jordan do not by themselves suggest improper behaviour, for financial regulatory experts they raise important questions.
Is a history of using offshore accounts or controversial investments appropriate for a person holding the ultimate compliance power over taxation?
Given government sources tell the Financial Review they were unaware of these matters, should Jordan have disclosed them when he became commissioner?
When treasurer Wayne Swan named him tax commissioner in 2012, he would call Jordan “my poacher turned gamekeeper”.
But to understand the sweeping changes which Jordan brought to Tax Office culture and the way it operates in the new digital world, its sometimes difficult relations with big corporates, and the conflicted view senior tax officers took over misbehavior at big four firms such as PwC, it’s necessary to look at the years – and the wild times – that formed him.

Party culture

It was the 1990s, and at KPMG Australia, women partners were rare. The men socialised together. They worked hard and they partied hard.
The partying was exemplified by the LLB, the Live a Little Better club, which would attend race days to raise money for charity and hold black tie dinners for 30 to 40 KPMG partners, each of them with a nickname. Jordan was Hightower, “because he was so fricking big,” one former member explained.
Others saw it less favourably. One senior partner called members of the LLB club the Low Life Bastards, a comment reflecting internal politics at KPMG.
Jones never made it into the LLB, but he and his 911 Targa were a regular feature at the KPMG parties.
“I was always quite fond of Wayne – he was highly intelligent, great company. A fun guy,” a former colleague says of Jones, who had a Master of Laws from Cambridge.
“He’s a very, very bright guy. The tax arrangements he came up with were so convoluted you had to be a Rhodes scholar to understand them.”
Jones was always working on one deal or another. “He’d try to get you into a deal, his eyes were flashing, he was very convincing,” says another former colleague. “A lot of people got involved.”
Jordan and Jones had worked together for years, and “we became friends,” Jones said in a 2018 affidavit.
Jordan was more into networking than Jones. He was always affable, but his size and imposing figure could give the impression of arrogance.
“I always thought Jordan would work out who the best person in the room was to talk to,” a former colleague says. “He plays the game very well.”
Another was more dismissive: “Chris knows how to piss in someone’s pocket, so it just becomes lukewarm.”

Investing together

From partying together it was a natural step for KPMG partners to invest together, in ventures ranging from an asset consultancy to a Ceylon tea importer, to plantation projects set up by Rothschild.
And then there were the tax schemes. In July 2021, an anonymous letter was sent to politicians, regulators and the media, with a spray of unsubstantiated accusations against Jordan and Jones and an Isle of Man company called Dinnans Limited.
Former associates who have fallen out with Jones are sceptical about the anonymous letter’s claims. They believe Jones is the most likely author, though this seems unlikely because he is one of the anonymous writer’s main targets.
It’s not known if regulators took any action in response to the letter. Jordan declined to comment but has privately said that he regularly received unsubstantiated and baseless claims against him.
However, the Financial Review investigation has confirmed a series of previously undisclosed transactions involving Jones, Jordan and Rothschild Australia executives in the 1990s, and Dinnans.
The letter referred to KPMG in-house tax schemes called Copper Doctor and Gold Doctor, which it said were trafficking tax losses in mining companies to wipe out much of KPMG partners’ personal tax bills.

KPMG-Rothschild partnership

In the late 1990s, using creative schemes to minimise tax was all the rage, especially for those using partnerships, tax losses were the way to go.
A former Rothschild executive confirmed to the Financial Review that up to 20 senior figures at KPMG and Rothschild, including Jordan, formed a partnership in the late 1990s to invest in the Horseshoe Lights copper-gold mine 800km north-east of Perth. The mine had been mothballed in 1994.
One of those involved described the scheme, known as Copper Doctor, as an investment that would have paid off if the copper price recovered. Others say it was a way of accessing the huge tax losses that the mine carried, by directing partners’ income towards the entity carrying losses.
Many accountants channel their partnership income through family trusts. While the details of the Horseshoe Lights arrangement aren’t clear, in such cases the family trust typically makes a distribution of that partner’s income to a third party, like the Horseshoe Lights group. The tax losses would mean Horseshoe Lights didn’t pay any tax, and on paper at least there was no undistributed income left in the family trust, so it didn’t attract any tax either.
But the distribution paid out to Horseshoe Lights was just on paper. By the marvels of accounting, the money would stay in the family trust, but now it was tax-free.
Jones played a leading role setting up the scheme. As a resources tax partner, Jones reported to Jordan, who was then partner in charge of the NSW tax and legal division at KPMG.
Gold Doctor was a similar scheme aimed at KPMG partners and Rothschild executives investing in Pegasus Gold’s failed Mount Todd gold mine 250km south of Darwin, through a company called Jairo Pty Ltd. While it also promised big tax losses, the deal fell through in early 1999. But Jones had a new plan for Jairo.

Setting up in Isle of Man

What happened next has been pieced together from company filings in Australia, New Zealand, Ireland and the Isle of Man, together with leaked documents, other sources and interviews.
In October 1998, KPMG Isle of Man incorporated a shell company, Dinnans Limited, with nominee directors and shareholders. Like most shell companies using this secrecy jurisdiction, it was difficult to identify the beneficial owner of Dinnans.
It coincided with a move by a close friend of Jordan’s to relocate to Ireland. The friend had known Jordan since they worked at Arthur Andersen many years before, and Jordan had introduced him to Jones.
Jones had provided conventional tax advice to Jordan’s friend over his move to Ireland, a routine process which other tax advisers had verified. Separately to this, Jordan and Jones asked him to acquire a shell company in the Isle of Man to make some international money transfers. It was Dinnans.
On March 3, 1999, $3.378 million was transferred into Dinnans’ Australian-dollar account at the Royal Bank of Scotland International, from an unknown source.
Jordan’s friend told the Financial Review he was paid $200,000 to acquire and operate Dinnans and to transfer the rest of the funds. “They offered me 200 grand, and I was happy to do it,” he said.
He did not recall the details of the transactions, including the source of the funds or the purpose of the payment. He understood it was part of a legal tax minimisation strategy.
On May 21, 1999, Dinnans transferred exactly two-thirds of the initial deposit, some $2.26 million, to New Zealand. It did this by subscribing for shares in a newly incorporated NZ company called Dunderdale Properties.
Dunderdale’s sole director was a Rothschild Australia executive, and its address for service of notices was Jones’ home in Sydney.
But the money didn’t stay in New Zealand for long.
On May 24, Dunderdale subscribed for one share in Jairo (the company in the failed Gold Doctor scheme) for $989,000; and one share in Nighcal for $642,000. That left Dunderdale still holding $629,000.
Nighcal was owned by a Rothschild executive, while Jones ended up the sole owner of Jairo, which had received the $989,000. Jones had no further contact with Dinnans.
At the end of this process, more than $2 million had been moved from the Isle of Man to New Zealand, and then most of it disbursed in Australia, via entities controlled by KPMG and Rothschild personnel.
Rothschild no longer has a lending business in Australia. It is understood the remaining Australian arm was not aware of the transactions. There is no suggestion that Rothschild acted improperly.
A year later, some of the anonymity which surrounded Dinnans’ administration slipped. In April 2000, KPMG Isle of Man sold its international fiduciary business to British financial services provider Singer & Friedlander for £5,816,250. Singer & Friedlander would make cameo appearances in two great leaks, Panama Papers in 2016, and Pandora Papers in 2021. These, and other leaked documents, and other human sources, provide records of some of those involved in the Dinnans transactions.
The accounts show that more than $900,000 was transferred out of Dinnans’ account from November 1999 to December 2001, when the company applied to be dissolved. The Financial Review has been told that Jordan was the chief beneficiary of these payments.
It’s not clear what the money was for. It’s possible it was repayment of a loan from Jones or another party.
The filings offer no clue where the money in Dinnans came from, or why the money was paid. While it could have been structured like this for tax advantages, it also had the effect of making it difficult to trace the source of the funds.

KPMG investigates

A KPMG Australia spokeswoman said an internal review and an external law firm were examining the matters raised in the anonymous letter, as well as other unrelated historical allegations involving former KPMG partners. KPMG had no record of the Isle of Man transactions.
“We are investigating allegations to the best of our ability, noting that the majority date back two or three decades, with some raised anonymously.” she said.

“To date, we have no evidence of any wrongdoing. However, if KPMG can assist with relevant information, we will not hesitate to act or provide it to relevant authorities. While the historic nature of the allegations makes corroboration particularly challenging, KPMG is treating these matters seriously.”
Even before Dinnans was wound up, Jones was on to other deals. From 2000, he partnered with a property developer, Antonio Maiolo, to put together property development projects funded by Rothschild Australia at Petersham and Fairfield, in NSW, which KPMG partners bought into.
But then it all went wrong.

Casino venture

Jones described what happened in an affidavit he lodged with the Supreme Court in September 2018. While Jones had a wife and three children, he says from 2000 he had been in a relationship with a Thai woman, Veena Kaha, with whom he had a child in September 2004.
Soon after, he said, Kaha convinced him to back her in a scheme to run junkets for high rollers visiting Australian casinos, through a company called Citadel Business Loans.
Kaha told him casinos would pay junket operators a commission on turnover, but that they required a large deposit. Jones turned to close associates and business contacts for money.

One of these was Jordan. In December 2004, Jordan deposited $80,000 with Citadel as an undocumented loan at 15 per cent interest, Jones said in his affidavit. It’s a large enough sum to raise eyebrows at the familiarity and trust which it suggests between the two men.
The following month, Jones left KPMG, but Jordan’s readiness to invest in Citadel continued. Jones claimed in his affidavit that Jordan invested a total of $415,000 in the casino junkets, though by 2007 repayments had reduced this to $334,000.
Given the reported links between some junket operators and money laundering, it is awkward optics for the man who was chairman of KPMG NSW, and who would be appointed tax commissioner five years later.
To be fair, other lenders to Citadel have said they were unaware what the loans, on which Jones was offering up to 30 per cent interest, were for. Yet, Jordan made the last two deposits totalling $50,000 in December 2005 and July 2007 directly into Kaha’s bank account, Jones said.
But it turned out there was no money laundering, and in fact no junket operations.

Ponzi scheme

According to Jones’ affidavit, on April 28, 2008, he confronted Kaha over a shortage of funds, and she told him there never was a junkets business, that it was a Ponzi scheme, and she had forged all the documentation and gambled away millions of dollars.
Jones describes angry exchanges with his investors, including Jordan, whose debt had already been paid down to $215,000.
Jones moved quickly. Days later, he was involved in share transactions which clarified that a string of apartments left over from his Fairfield property development were held by a newly incorporated company owned by his wife, Michelle Jones, with whom he was now reconciled.
Wayne Jones granted Jordan a third mortgage on the Pyrmont apartment where Kaha and their young son were living, but when this was sold in September 2008 for $970,000, nothing was left to pay out Jordan’s third mortgage.
Chris Kinsella, a former KPMG colleague who was then a tax partner at PwC, took Jones to court over unpaid loans. On May 18, 2009, Kinsella was awarded $946,000 against Jones in the NSW Supreme Court.

‘Agreement with Jordan’

As creditors’ complaints escalated, Jones in his affidavit says he talked to Jordan. On May 26, 2009, a week after the court judgment, Jones says he made an agreement with Jordan about an apartment in Spencer Street Fairfield, which was part of the property development Jones had done there, funded by Rothschild. The apartment was owned by a company for which Jones was sole director but which was owned by his wife, Michelle.
Jones says in his affidavit: “I agreed with Mr Jordan that the company would transfer that property to his (Jordan’s) wife, whose maiden name is Hailey-Jayne (sic) Braban, as satisfaction of the loan of $215,000, which was still outstanding and owed by me to Mr Jordan being the money that he had loaned me for the casino venture. No purchase money was paid by Mrs Jordan under the contract.”
Property records show that on June 22, the property was transferred to Hayley Jayne Braban for $215,000 under a sale contracted on May 26.
On June 25, Kinsella registered a creditor’s position to bankrupt Jones. But Jones forestalled Kinsella by installing his own controlling trustee, Steven Nicols, of Nicols & Brien, under Section 188 of the Bankruptcy Act.

Statement of claim

When Nicols called a meeting of creditors, Jones says in his affidavit that Jordan registered a claim against him: “On 12 August 2009, Jordan signed a statement of claim and proxy form in which he asserted that he was a creditor of mine for a sum of $264,250, being the loan of $215,000 plus interest.”
On Jones’ account in the affidavit, Jordan was making a creditor’s claim for a debt that had already been paid. Of course, there may have been other debts or obligations between the two men beyond the casino junket loans, which Jordan was claiming.
Braban had put the Fairfield apartment on the market in mid-July, and it was sold on August 17 for $175,000, a loss of $40,000 on the purchase price. Jordan signed the transfer document as a witness when the sale was settled on October 14.
“I personally would not attach any credibility to Mr Jones’ claims,” says a former associate who loaned money to Jones, and who asked not to be named. “In my experience, Mr Jones is highly unreliable, particularly when it comes to matters involving money. Mr Jordan I have observed to be a decent and honorable man. The assertions made by Mr Jones should not be relied upon.”
Spokeswoman for Chris Jordan
“The Commissioner of Taxation cannot comment on matters either before the court or on the tax affairs of any individual or entity due to obligations of confidentiality and privacy under the law.”
Spokeswoman for Chris Jordan

A spokeswoman for Mr Jordan said in January that the former commissioner “cannot comment on matters either before the court or on the tax affairs of any individual or entity due to obligations of confidentiality and privacy under the law”.

‘Poacher turned gamekeeper’

Jordan’s career went from strength to strength. He was chairman of the Board of Taxation from 2011, he chaired the Business Tax Working Group that treasurer Wayne Swan set up that same year, then in 2012 was named tax commissioner.
Swan told the Financial Review that Jordan’s practical experience was invaluable. His Liberal Party links “didn’t matter to me”, Swan said last year. “He got the job done that wasn’t being done. I always referred to him as my poacher turned gamekeeper.”
From left, treasurer Peter Costello, Chris Jordan and Ted Evans, former federal Treasury secretary and Westpac chairman, in 2001. Louise Kennerley 
As commissioner, Mr Jordan won kudos for running a multinational investigation into how tech giants sidestepped tax. He led the world in 2016 with the response to the Panama Papers, some 11.6 million documents from Panama firm Mossack Fonseca, proposing the most ambitious international investigation in history, with more than 30 countries working together to hunt down tax evaders identified in the leak.
But Jordan’s history with Jones would resurface in the NSW Supreme Court.
In 2009, Jones settled with many of his creditors, and by September had put the bankruptcy bids behind him. By 2012, he was fending off new attempts to bankrupt him by the Tax Office, and he has faced regular court battles since then.
By 2018, Jones was battling a $5.6 million tax bill on undeclared personal income; the ATO was flagging a possible further $17 million from an ongoing audit into one of his companies.
Jones filed an affidavit setting out his defence – that losses from the failed casino junket scheme had wiped out his taxable income, which he said the tax commissioner (Jordan) was aware of because he had been an investor.
Jones’ claims about Jordan received short shrift in the Supreme Court, where Justice Peter Johnson ruled in December 2018 that “the defendant’s evidence, at its highest, indicated that Mr Jordan lent some money to the defendant in a private capacity years before he became commissioner of taxation”.

‘No evidence’

“There was no evidence that Mr Jordan had played any part in the decision-making concerning the bringing of the recovery proceedings and the application for summary judgment,” Justice Johnson found.
He confirmed the Tax Office’s position that Jones’ evidence about the casino junket loans “was irrelevant to the issues to be considered on the present application and, in any event, went nowhere”.
Governance experts saw potential red flags in the casino junket loans and the funds transferred from the Isle of Man, a secrecy jurisdiction.
“For our highest tax officers, they need to be well beyond any question over their integrity and ethics, and especially their own tax dealings,” barrister Geoffrey Watson SC, who is a former counsel assisting the NSW Independent Commission Against Corruption, and a director of the Centre for Public Integrity.
“The curious nature of some of these transactions were such that I would have expected an appropriate appointment process to pick them up, and I would have expected that they would have been matters that Jordan would have revealed.”
Associate Professor Andrew Schmulow, an expert on financial regulatory architecture who lectures at the University of Wollongong, said: “If these allegations are true, then it reinforces the need for arms-length, rigorous, non-partisan and forensic oversight and control over the appointment of leaders of the most important Commonwealth authorities in the land.”
KPMG now puts tight restrictions on partners investing together.
“In 2016, KPMG strengthened its policies on partners investing as a group to strongly discourage partners from investing together outside of the firm,” the spokeswoman said.
“In addition, in 2016 a personal commercial activities policy came into effect, formalising a strict approval process for any such activities. Annually, partners are required to confirm compliance with the policies.”

Driving record

The ATO is currently pursuing investors in AgriWealth forestry schemes that Jones acquired from Rothschild in 2005. The investors, including some former KPMG partners, are contesting new Tax Office assessments.
AgriWealth Capital also faced court action last year from the Australian Financial Complaints Authority, which alleges it overcharged investors.
Last year, in an appeal before the Administrative Appeals Tribunal that revisited the casino junket claims, deputy president Bernard McCabe was scathing about the way Jones conducted his business “by the seat of his pants”, with Jones conceding “there’s money going everywhere”.
McCabe confirmed a finding of evasion against Jones, for withholding information from the Tax Office and failing to report fee income in his “idiosyncratic approach to his finances”.
And then there’s his driving record. When Jones appeared in Manly Court last July after conducting a U-turn across double lines on Military Road in Neutral Bay, the magistrate marvelled at his record of traffic offences, which stretched over seven pages.
His barrister’s plea that Jones needed to be able to drive to run his business interests across the state went down badly.
Jones has spent his life in the fast lane. Now, the magistrate advised kindly, “perhaps your client needs to discover public transport”.

More about tax and professional services