Targeting tax crime: A whole-of-government approach - February 2011
Targeting tax crime: A whole-of-government approach - February 2011
Issue four February 2011
The fourth issue of Targeting tax crime: a whole-of-government approach (PDF, 2.03MB) is now available.
Take a closer look at what Australian Government agencies are doing in the fight against tax and superannuation crime in our online magazine.
In looking at the price we pay for protection of the community's tax system, this edition will discuss how we operate within the parameters set out by the law; new developments in our capabilities to identify those who rort the system to their advantage; and provide an update on Project Wickenby.
You'll also find interviews and guest commentary from some of the leading figures in the field as well as interesting case studies and links to more information.
We value your opinion and we're interested in your response to this magazine. If you are interested in participating in market research to enhance the magazine, email us at email@example.com
Previous issues - Targeting tax crime magazine.
Protecting honest taxpayers from those who would abuse the community's tax system is a high priority for me, as Commissioner of Taxation.
Our work as part of the Project Wickenby investigations has highlighted the seriousness with which the ATO, our partner agencies and the courts treat the occurrence of tax crime. The High Court recently dismissed an appeal against sentences imposed. They stated, 'Serious tax fraud, which this was, is offending that affects the whole community'.
When it comes to fighting tax crime, we firmly believe that prevention is better than cure. It is in everyone's interests that we deter people from engaging in crimes against the community and we believe Project Wickenby is sending a clear signal to those tempted to cheat. When tax crimes have been committed we will seek to bring those offenders to book.
In doing this Parliament has entrusted us with powers that help us gather evidence, or that assist to safeguard amounts owing to the community. We use these powers in a professional and considered way. Unlike the crooks, we impose upon ourselves, over and above the requirements of the law, administrative processes that protect the rights of individuals and that safeguard due process.
This was brought to light recently when we were criticised over the use of our access without notice powers. This criticism prompted a review by the Taxation Ombudsman which found that the ATO had acted justly and within the law. The report found that the ATO has appropriate guidelines and manuals to guide our people in their important work and that the practices observed accorded with the principles set out in Administrative Review Council's report The coercive information-gathering powers of government agencies.
In this edition of Targeting tax crime you will read about what the ATO and partner agencies are doing to protect the Australian community from those who abuse the system to the disadvantage of honest Australians.
Commissioner of Taxation
The recent floods have inflicted significant hardship on Australians across the country. Fortunately we are a nation built on mateship; a nation that chips in to help others when the times are tough.
The sight of thousands of volunteers lining up to help neighbours they have never met or donate money to areas they will never visit, tells a story of a country that believes in community and is willing to do what it takes to keep that community running.
Our taxation system relies on everyone playing their part and contributing their fair share of the revenue. In turn, the revenue stream supports the community, providing essential services like infrastructure, education and health. It is critical that we protect the revenue needed to sustain our Australian way of life.
In these difficult times, we understand there will be people with cases of genuine hardship who will need our assistance. The message to these people is we are here to help.
But our commitment to protecting the revenue for the community remains strong. While the majority of Australians do the right thing, for the ones who don't the message is clear: behaviour that erodes the Australian community will not be tolerated. When it comes to tax, the hardworking, honest Australians who willingly pay their fair share should not have to pick up the slack caused by those who deliberately evade their obligations.
This magazine highlights how the ATO and partner agencies work together to deal with serious abuses of the tax and superannuation systems - to ensure a fair go for all Australians.
The task of protecting the revenue is not always an easy one and I applaud the efforts of all the agencies involved in the fight against tax crime. When we see images of vast stretches of washed away roads, damaged schools and homes underwater, it's a resounding confirmation of the importance of protecting the taxation system.
The Hon Bill Shorten MP
Minister for Financial Services and Superannuation
Total tax liabilities raised under Project Wickenby are now more than $1 billion.
Despite the financial success of Wickenby, the real benefit for the community is in the deterrent effect it has on would-be criminals and bringing people back within the system.
The significant sentences handed out recently to people prosecuted under Wickenby demonstrate how seriously the courts treat crimes against the tax system.
Sentences of up to eight and a half years in jail are proving to be an effective deterrent to people who think they can steal from the Australian community.
Some of Wickenby's achievements up to 31 January 2011 include:
- $240 million in cash collected
- a further $306 million collected in taxes as a result of improved compliance behaviour from people previously subject to Wickenby action
- 62 people charged with serious offences
- 1,823 audits and reviews completed
- 443 audits in progress
- 24 criminal investigations under way total tax liabilities raised of $1,005.86m.
The ATO has recently published a collection of scenarios that show the significant personal and financial repercussions of getting involved in an abusive tax avoidance scheme.
Read the Wickenby scenarios.
All persons mentioned in this scenario are fictional.
Scenario: If it looks too good to be true it probably is
Joe ran a successful tyre business in Sydney, while Joe's friend Gus was also doing pretty well for himself with a restaurant in Coolangatta.
Noticing Gus was doing particularly well lately, Joe asked about the secret to his success.
Gus said that there was no 'secret'; it was simply a matter of business structuring. He added he'd be happy to set up a meeting with his new adviser, Tony.
'It's as easy as giving Tony some money and getting it back in a tax effective structure,' Gus assured Joe.
Joe met Tony at a very smart building and was ushered into his equally smart and spacious office.
Tony outlined a proposed structure, detailing potential cost benefits, returns on investment, risk margins and other terms equally foreign to Joe.
Joe agreed to transfer $500,000 to Tony's account as instructed, and was satisfied with the terms of the agreement, whereby he would receive a cash card to access his money.
About a year later Joe has a new kitchen and boat and things are looking good. Tony was making them a fortune with his restructuring plan.
So Joe was surprised when a very worried-sounding Gus called him for a chat.
Gus was being audited by the ATO and said there was a chance he could go to jail. Gus said Joe needed to talk with a solicitor and to get Tony in on the meeting.
Joe's solicitor sat in stunned silence as Tony outlined the offshore structure, the use of false invoices, multiple accounts in secrecy havens, and cash cards to access the funds.
Tony argued that Gus was just unlucky, that the ATO still had to find evidence and didn't have the time or expertise to do it.
Joe's solicitor advised him to have nothing more to do with Tony and his 'scheme' and arranged a meeting with the ATO. He explained to Joe that it wasn't the 80s anymore, the ATO was serious about catching tax cheats and had the resources and technology to do it. And it wasn't just the ATO either. The Australian Crime Commission, Australian Federal Police and other agencies were all working together to target tax crime.
His advice: 'It's time to 'fess up, pay up and come clean.'
It was the first good advice Joe had received in relation to his business in a long time.
Although he had to pay back the tax he had avoided using Tony's scheme, plus interest and penalties, Joe avoided prosecution and having his name dragged through the mud in the courts. It was a different story for his pal Gus and former 'business adviser' Tony.
Gus was sentenced to five years jail on top of the $1.2 million in unpaid taxes, penalties and interest he had to pay to the ATO. As it turned out he was 'skimming' hundreds of thousands of dollars from the till and didn't declare it as income. Gus's 'secret' to success was tax evasion and fraud.
As a promoter of dodgy tax schemes Tony also wound up in jail with a hefty fine to boot.
The latest intelligence captured by the ATO highlights a trend towards a business-like and highly organised approach to commit refund fraud.
These groups are attempting refund fraud - stealing, manipulating or falsifying identities in the process which can result in large monetary sums at risk.
These organised networks demonstrate business-like attributes and are highly reactive to the ATO's mitigation strategies.
'What we are seeing is a move away from refund fraud that is typically committed by individuals who over claim deductions and expenses in their own returns towards a more complex type of fraud that is using increasingly sophisticated and organised methods to manipulate the system,' ATO Deputy Commissioner Michael Cranston said.
These syndicates operate within an efficient hierarchical structure where identifying the leadership can be difficult. Leaders may reside internationally while lower level syndicate members may only visit Australia temporarily. These network members typically carry out tasks such as opening bank accounts and harvesting identity information.
'The level of organisation within the syndicate often means that when the ATO identifies members and curtails their activities, these members are readily replaced with new team members,' Mr Cranston said.
While attacks have tended to focus on income tax, evidence also supports some movement into GST refund fraud. An attack was thwarted in June 2010 when several hundred ABNs were seemingly being stockpiled in preparation for fraudulent lodgment.
The primary strategy for tackling refund fraud is to stop the refund before it is issued. The ATO does this through cutting-edge technology that allows for a proactive approach.
'A number of analytic and business models review returns, looking for similarities, known fraud sources and new patterns of behaviour. These models work at both the individual and the group level, so where it appears that a return may be part of a syndicate, those returns can be profiled and reviewed as a group,' Mr Cranston said.
'Through this type of sophisticated model analysis, our understanding of fraudulent behaviour continues to improve, as does our capability to prevent it.'
Our fraud models work on a large scale and have intercepted approximately 27,500 suspect returns containing refund claims totalling $124 million to 30 November 2010. Ninety-two investigations into refund fraud matters were also completed in 2009-10. There has been a marked increase in the number of custodial sentences awarded for successful prosecutions from these investigations. Over 86% of convictions in 2009-10 resulted in custodial sentences compared with 74% in 2008-09.
The number of suspicious activity reports provided to the Australian Transaction Reports and Analysis Centre (AUSTRAC), under Australia's anti-money laundering and counter-terrorism financing regime, increased markedly in 2009-10.
AUSTRAC received over 47,000 suspicious activity reports in 2009-10, representing an increase of 46% on the total received in the previous year.1
Reports about suspicious activities are a vital component assisting AUSTRAC in its work with other agencies. For example, the reports could give the ATO a lead to identify and investigate tax evasion, or law enforcement agencies may use them to investigate terrorism financing, money laundering, drug trafficking, people smuggling and other serious crimes.
The increased number of reports has had a major impact on the volume of information about suspicious activities that AUSTRAC has been able to share with its partner agencies. Over 58,000 disseminations about suspicious activities were made by AUSTRAC to partner agencies in 2009-10. This represents a 34% increase on the number of disseminations made the previous year.2
AUSTRAC has focused in recent years on educating reporting entities on their obligations under anti-money laundering legislation, including the need to report suspicious activities. The increase in reporting demonstrates that awareness of suspicious activities among reporting entities is improving, which in turn enables AUSTRAC to increase the support it provides to its partner agencies.
The reports submitted show significant increases in suspicion in tax-related categories such as:
- industry/occupation of interest
- country of interest
- advanced fee frauds/scams
- superannuation-related issues
- refusal by the customer to show identification/complete transaction reports
- avoiding reporting obligations
- unusual account activity
- unusually large cash transactions
- suspicious behaviour and behaviour inconsistent with the customer's profile.
What is a reporting entity?
Generally a reporting entity includes banks and other financial institutions, remittance service providers, foreign exchange dealers, bullion dealers and gambling service providers. For further information visit AUSTRAC www.austrac.gov.au
The Australian Crime Commission (ACC) - led national Fusion Capability is the latest weapon in the fight against serious and organised crime.
Officially launched in July 2010, the Fusion Capability co-locates investigators, analysts and technical experts to maximise the use of public and private sector data and facilitate real-time intelligence sharing and analysis.
Fusion brings together capabilities from key Commonwealth agencies including the Australian Federal Police, Department of Immigration and Citizenship, Australian Transaction Reports and Analysis Centre, Australian Taxation Office, Centrelink, Customs and Border Protection and State and Territory law enforcement authorities.
John Lawler, CEO of the ACC, says the concept of fusion encapsulates the strategic direction of the ACC and is just one example of how the agency is instigating a joint attack on serious and organised crime.
'The focus of the ACC is on the value we add to the work of our partner agencies and the national, and increasingly international, linkages we can provide. Rather than duplicating the work of our partners, we are constantly looking at ways to best utilise the data, skills and resources available to more effectively disrupt the highest threat criminal targets,' Mr Lawler said.
Dr David Lacey, National Manager Collections and Analytics, is overseeing the implementation of the Fusion Capability.
'Since launching, we have already identified high-threat targets that were previously unknown to law enforcement. New and vital information is also being generated on many of the entities currently the subject of law enforcement efforts. This highlights the importance of a collaborative approach to data sharing and analysis among agencies outside the traditional law enforcement cadre,' Dr Lacey said.
The potential of the Fusion Capability will be further realised over the next 12 months, as regional fusion hubs are rolled out across Australia and national criminal intelligence is translated into tangible outcomes.
Further information about the ACC's Fusion Capability can be found here.
Fusion celebrates recent outcome
In February 2011, two women were charged with facilitating a highly lucrative money laundering syndicate in the south-western suburbs of Sydney. This was uncovered as a result of the information sharing and analysis which is enabled through the National Criminal Intelligence Fusion Centre.
In May 2010 the Financial Intelligence Assessment Team (FIAT), a component of the Fusion Centre, identified a syndicate allegedly facilitating avoidance of taxation obligations for a large number of clothing manufacturing businesses. FIAT then referred the case to the Australian Federal Police (AFP) which investigated the syndicate and executed eight search warrants on residential and business premises in western Sydney, seizing over $800,000 in cash. A 47 year old Croydon Park woman and a 59 year old Green Valley woman were charged with dealing in proceeds of crime worth $1 million or more, contrary to Section 400.3 Criminal Code Act 1995.
The ATO is stepping up its assault on tax fraud, tax evasion and identity fraud in the business community, courtesy of a $337.5 million funding increase handed down in this year's Budget.
Deputy Commissioner for Indirect Tax at the ATO Shane Reardon said the message to businesses that try to evade or under report their GST responsibilities or engineer identity or tax fraud is 'you will be caught'.
'This money represents a significant vote of confidence in the ATO's ability to tackle the evaders and the fraudsters,' Mr Reardon said.
'We'll be increasing our activities across the board from those who seek to operate outside the system by not registering for GST or not lodging returns, to those who attempt to defraud the community by lodging fraudulent returns, often using false or stolen identities.
'We have increased our resources to verify refunds by visiting suspect businesses or contacting third parties to substantiate claims.
'We are also closely scrutinising those registering for the GST to confirm their identities and have significantly enhanced the checks we do before issuing refunds with pre and post-refund audits being ordered for suspect returns or high-risk groups.
'Meanwhile computerised checks are also being enhanced and expanded to identify suspect business activity statements.'
Mr Reardon said that for 2009-10 there were 2,831 successful prosecutions for breaches of tax laws resulting in 53 custodial sentences.
He said that the $337 million is an investment in improving that record and boosting revenue.
'Over the four years we expect to recover an additional $2.7 billion in revenue for the community and an additional $1.56 billion underlying cash GST collections paid to the states and territories.
'That's not counting the improvement in compliance across the broader community (resulting in increased revenue) that experience tells us goes hand in glove with high profile compliance activities like this.'
Case study: It's not worth the risk
Graham, the owner of a small consultancy in Victoria, thought he could boost his income by creating false companies and submitting fraudulent activity statements to the ATO.
Thinking that the sheer volume of activity statements the ATO processes would allow him to slip under the radar undetected, he created 17 bogus companies and submitted fraudulent activity statements for each of them.
However, instead of the hefty GST refund he expected, Graham received a rather severe lesson in the ATO's ability to detect fraud and evasion by working with other government agencies, on this occasion, the Australian Federal Police.
The ATO quickly identified his claims as suspect. Before GST refunds are issued, all claims are automatically checked against a set of criteria to detect incorrect or fraudulent statements. In this case, the GST Identity Fraud Model picked up some very clear fraud characteristics in the series of activity statements lodged. Once detected, the ATO undertook a detailed investigation where it became evident that a serious offence had occurred.
His home and business premises were raided and documents and his laptop computer seized.
Computer forensics easily detected the fraudulent drivers' licences, passports and birth certificates used to register the bogus companies and create bank accounts for the GST refunds.
Graham was charged with obtaining and attempting to obtain a financial benefit by deception. He was sentenced to five years imprisonment and had to pay $312,075 reparation.
The judge said that fraud on the Commonwealth revenue was a serious offence which must be dealt with by way of custodial sentence. He pointed out that it was not just fraud on the ATO but a fraud on the community as a whole.
With over 800,000 of us falling victim to a personal fraud (scam) each year3, Consumer Fraud Awareness Week (7-13 March) provides a timely reminder for taxpayers to stay one step ahead of fraudsters.
Consumer Fraud Awareness Week is a cross-agency initiative led by the Australian Competition and Consumer Commission (ACCC). The purpose of the week is to highlight the risks of consumer fraud and encourage the community to take steps to protect themselves from this kind of deceptive activity.
Fraudsters commonly imitate the ATO to try and trick innocent taxpayers to hand over money, tax file numbers (TFNs) and other identity details.
The personal impact on the victim of a scam can be distressing, and it can take years to fix.
Each month the ATO receives hundreds of reports from taxpayers who have been on the receiving end of a tax scam.
What is a scam?
A scam is a fraudulent invitation, request, notification or offer designed to obtain someone's personal information or money, or otherwise obtain a financial benefit by deceptive means.
'Email phishing scams are common, but with improvements in email filtering software and increased levels of awareness in the community about this type of scam, fraudsters are changing tack,' Commissioner of Taxation Michael D'Ascenzo said.
'For example, we're getting reports of fraudsters imitating a tax officer and 'cold calling' taxpayers in an attempt to convince the taxpayer to hand over money or identity details.'
TFN theft is a serious concern for the ATO, and is something the ATO is always alert to.
'Our sophisticated systems use known patterns and characteristics to detect and stop a fraudulent refund from issuing, but taxpayers also need to play their part in preventing fraud by staying one step ahead of scammers,' Mr D'Ascenzo said.
Taxpayers can take simple steps, such as ensuring they provide their TFN only to authorised parties who have a legitimate reason to access this information.
As part of our involvement in Consumer Fraud Awareness Week in March, we'll be reminding taxpayers to protect their TFNs as a key part of their identities.
Advance fee fraud
Michael was on a lunch break when his mobile rang. When the caller said he was from the ATO he lost his appetite for a moment. But this quickly changed when he found out he was eligible for a bonus refund payment of $3,000 for good compliance. A new 'taxpayer bonus', or so he was told.
To facilitate the refund all he had to do was pay a 'release fee' of $150 to a designated account within the next couple of business days. Not wanting to miss out, he quickly wired the money to the account in India and waited patiently for his bonus cheque to turn up in the mail.
Of course the 'bonus' never arrived and Michael lost his money.
For more information, visit www.ato.gov.au/identitycrime
To report a scam, phone 1800 060 062 or visit www.ato.gov.au/reportevasion and www.scamwatch.gov.au
Alicia, a university student, was looking for a part-time job. Searching online, she found an advertisement for a job as a casual cleaner, with great pay and working hours that suited her study timetable. To apply, all she had to do was send off an email with her resume, bank details, a scanned copy of her driver's licence, and a scanned ATO notice of assessment indicating her TFN and wait for the call.
What went wrong?
The job ad was fake. It was placed by a syndicate of identity criminals based overseas. The scammers used Alicia's identity to lodge a false tax return and claim a refund in her name.
ATO systems detected the false return and stopped the refund from issuing. With the help of the ATO, Alicia was able to get a new TFN and fix the problems associated with the false tax return, but the inconvenience was something she could have done without in her final year of study.
Two prominent superannuation industry leaders share their thoughts on the pitfalls of illegal early access to super schemes, and the steps taken by regulatory agencies to stop it.
Andrea Slattery, CEO of Self-Managed Super Fund Professionals' Association of Australia (SPAA).
Pauline Vamos, CEO of the Association of Superannuation Funds of Australia (ASFA).
What risk do you think illegal early access represents to the integrity of the superannuation system?
It's an issue for the whole industry, not just self-managed super funds (SMSFs).
Illegal early access occurs on a number of fronts. Promoters are out there encouraging individuals to establish sham SMSFs from which money is ripped out of the system. There is also ID fraud where people have their super savings raided by criminals as fake documents support fake conditions of release. Then there are those SMSF trustees seeking to use the money in the fund for a personal or business reason, in fact using the fund as some form of credit facility.
The risk is that all these illegal early access schemes have the potential to destroy the integrity of the system. It cannot be understated.
The system works because super is a long term investment for which generous tax concessions are provided.
The early access promoters, the ID theft, some SMSF trustees using their fund as a personal bank account, if all left unchecked, have the potential to influence the way ordinary Australians view the long term requirement of super savings.
It's good to see that the Government has supported the Cooper recommendations to beef up the penalty regime to discourage schemers and participants of illegal early access schemes.
While the risk to the superannuation system is largely confined to opportunistic 'scheme promoters' the issue of illegal early access is one which represents a significant reputational risk to the entire superannuation system.
SPAA has been assisting the ATO and the Australian Prudential Regulation Authority (APRA) on the development of the ATO SMSF member verification service. This is aimed at ensuring member security and system integrity when funds are rolled over from an APRA fund to a SMSF.
We also note that via its response to the Cooper Review, the Government will require proof of identity checks for all people joining a SMSF whether they are establishing a new fund or joining an existing fund.
SPAA continues to work with regulators on their development of other initiatives to improve member security and system integrity such as bank account verification and the use of the tax file number as the single identifier.
What would you say to people thinking about accessing their retirement savings early?
Opportunistic scheme promoters, who prey on vulnerable people and persuade them to access their super early (so the promoter can earn an excessive commission or access the savings) should be prosecuted. We are pleased that the Government's response to the Cooper Review includes civil and criminal sanctions for illegal early release scheme promoters.
That said, we are all ultimately responsible as individuals for the financial decisions we make. Unfortunately, scheme promoters will always be with us in one form or another. People should also ask themselves 'what is in this for the person telling me I can access my super early?'
On the education front, SPAA has recently launched a SMSF trustee education curriculum guide to encourage development of SMSF trustee training. We expect to see more courses become available for trustees who want to learn about their roles and responsibilities. The Government response to the Cooper Review will also provide the ATO with the power to penalise the trustee for breaches, including illegal early release, and there is to be compulsory education for any trustee who breaches.
Nothing good comes from illegal early access.
If you're an individual illegally accessing your super you run the risk of not only some hefty fines if caught, but also denying yourself what might have amounted to be a reasonable benefit in retirement. This in turn could have a significant impact on your standard of living once you stop working.
Not only are these individuals impacting their future, but they could find themselves facing fines today that, when combined with the 'commission' charged by the promoter, leaves very little available for immediate consumption.
If you're a SMSF trustee seeking to use the money in the fund for a personal or business reason, you're looking to break the law. The SMSF is not some form of emergency credit line. There are some serious penalties that apply to trustees who contravene the rules.
As well as the risk of prosecution or being disqualified - both of which could impact future employment prospects - trustees risk losing close to 50% of the assets in the fund if the fund is made non-complying.
For those who have already accessed their super where they didn't know the rules, the sooner the matter is resolved the better. ASFA would advise anyone involved in illegal early release, either through a promoter or through their SMSF, to enter into a dialogue with the ATO as soon as possible.
When a fund sends an election to become regulated the ATO conducts checks during the registration process. In some cases this may cause delays in the registration process. What will this mean to the SMSF market and APRA regulated funds?
ASFA welcomes the changes to the registration process recently introduced by the ATO and acknowledges that these changes strengthen the integrity of the process.
The registration process was something that needed attention. The slight delay associated with the new process allows the ATO some valuable time to perform other checks and ASFA understands that hundreds of suspect registrations have been prevented as they failed the integrity checks that the ATO applies.
From a SMSF perspective the new registration process goes a long way to taking away the doubt as to the bone fides of the SMSF when APRA funds transfer benefits. The impact on the many legitimate SMSF registrations should be minimal.
From an APRA fund perspective the new registration process is all about adding confidence and safety to the system. APRA fund trustees take their jobs very seriously and the new process adds a much-needed layer of integrity to the registration process. It also facilitates a better rollover process.
ASFA has encouraged all APRA regulated funds to engage with the new process.
There may well be minor delays as the new ATO SMSF member verification process is bedded down. However, SPAA believes this is a small price to pay to ensure the ATO can make the necessary checks to ensure member security in the rollover process.
What are you doing to detect and stop illegal early release of superannuation?
We are continuing to work with the ATO and others to ensure that establishment of a SMSF is a transparent and secure process, and is used by those with a genuine desire to manage their own super. We also look forward to the development of measures such as bank account verification with regard to SMSF rollovers, which SPAA has also been advocating for some time.
Finally, as already mentioned, we have launched a trustee education curriculum guide and continue to advocate for higher standards for SMSF advisers.
As an industry association, ASFA sees its role to alert our members to the issues and to provide them with the tools to assist them to deal with the situation.
To this end we've worked closely with the ATO and issued messages to our membership warning of the prevalence of promoters and reiterating to our many service provider members who service SMSFs that they too need to be diligent.
ASFA's SuperGuru website also contains warnings directed to individuals who might be targeted in illegal early access schemes.
On 16 December 2010, the Government announced the introduction of the Stronger Super package, which will make our super system stronger and more efficient.
For more information about the Stronger Super package, visit strongersuper.treasury.gov.au
Australian Securities and Investments Commission (ASIC) ChairmanTony D'Aloisio
ASIC is Australia's corporate, markets and financial services regulator. It is responsible for ensuring that Australia's financial markets are fair and transparent, supported by confident and informed investors and consumers. We caught up with ASIC's Chairman Tony D'Aloisio to learn more about ASIC and it's focus for the coming year.
What are ASIC's priorities for the coming year?
2011 is going to be a big year for us. We will continue to deliver across each of our six strategic priority areas, such as improving confidence in financial market integrity and assisting retail investors and consumers, as well as delivering cost-effective services.
At the same time, we will focus on implementing our new responsibilities, including:
- market supervision
- regulation of consumer credit and finance broking
- regulation of trustee companies
- administering laws to deal with unfair terms in consumer contracts
- assuming responsibility for the National Business Names register.
How does ASIC aim to improve its effectiveness and service levels?
We expect to see a significant improvement in service levels when we assume responsibility for a new national business name registration service. The introduction of the National Business Names Register online service is part of a whole-of-government initiative to save time and cut costs for people starting new businesses.
One of the key features of the new service is that a business name will only have to be registered once. Currently businesses register their business name in every state and territory in which they trade. The registration will also be available online, with confirmation of registration received immediately in most cases.
An important element of this project is our collaboration with the ATO and Australian Business Register (ABR) in the delivery of a joint online application for an Australian Business Number (ABN) and national business name registration. This streamlining of registrations will assist the establishment of a new business.
Further information regarding the commencement of the national register will be provided shortly.
Who are the key stakeholders ASIC works with to regulate the corporate and financial markets?
With a focus on delivering strong results for all stakeholders, ASIC often works with other regulators and organisations such as the Australian Prudential Regulation Authority (APRA), the Reserve Bank of Australia (RBA), the Australian Competition & Consumer Commission and the Commonwealth Director of Public Prosecutions.
ASIC is also a member of the Council of Financial Regulators, the coordinating body for Australia's main financial regulatory agencies. Other members are the RBA, APRA and Treasury. The Council's role is to contribute to the efficiency and effectiveness of financial regulation by providing a high-level forum for cooperation and collaboration among its members.
How do ASIC and the ATO work together?
We signed an agreement with the ATO in 2007 to consolidate and strengthen our working relationship. We are currently looking at ways to strengthen this relationship further through the development of joint initiatives and taskforces, including initiatives to improve data integrity through data exchange between ASIC and the ABR.
Can you give an example of illegal activity ASIC and the ATO work together to identify?
The ATO and ASIC share responsibility for combating illegal phoenix activity. Phoenix activity involves the evasion of tax and other liabilities, such as employee entitlements, through the deliberate and sometimes cyclic liquidation of related corporate trading entities.
In 2009-10, ASIC disqualified 90 directors from the right to manage a corporation for insolvency and phoenix-related offences.
ASIC is serious about tackling phoenix activity and will continue to push the existing legislative and administrative mechanisms to address illegal phoenix activity. We will also continue to work with Treasury and the ATO on strategies to reduce the incentive to engage in this type of illegal behaviour.
For six years the Joint International Tax Shelter Information Centre (JITSIC) has been bridging the geographical divide between member countries, helping lift the veil on international tax avoidance and bringing the global tax community closer than ever.
But exactly how does it operate, and how successful has it been? We caught up with the ATO's JITSIC representative in London, John Box, to find out the inner workings of the centre and what the future holds.
What was the driving impetus behind JITSIC?
JITSIC was formed to curb tax avoidance through the identification and analysis of abusive tax schemes. Australia, Canada, Japan, the United Kingdom, the United States, South Korea and China are the current JITSIC member countries, with France and Germany participating as observers. Generally, the exchange of information process between two countries enables the member country to uncover new information that can verify claims made by a taxpayer. It is an effective way to tackle tax avoidance - especially when it is of a cross-border nature.
There are JITSIC offices in Washington and London. My colleague Mark Bertone is the ATO representative in Washington and I started working in our London office in October 2010.
Describe a typical day at work as a JITSIC representative
A critical aspect of our work is the building of relationships. This is pivotal in any successful workplace and is even more the case in an international environment.
A JITSIC work day is unusual when compared to working in Australia. The first difference is that I am not actually working with Australians in my typical 'day', except for my colleague in Washington, Mark, who I talk to almost daily. Secondly, the time zone means I am constantly juggling the workload from Australia that builds up overnight with the local day's interactions in the JITSIC office.
In the office there are many informal conversations going on about the latest news, what it means, exchanges of information and trying to open doors into each other's organisations. I have met many people in the HM Revenue & Customs from various work areas and found something relevant to us [the ATO] in each discussion.
In the evenings I often phone back to the ATO to speak with people about matters such as intelligence and exchanges. It makes for a long day, but it's certainly exciting and varied.
How has working in this role changed your perception on tax administration and fighting tax crime?
I am constantly amazed at how the administration issues are similar in each country even though there are vast differences in culture, law, systems and expectations. Issues such as building capability, fairness of law, openness and transparency, as well as working with taxpayers seem fairly common aspirations across the board.
In relation to the second part of the question, the role of being an ATO representative in the United Kingdom includes some aspect of dealing with criminal matters. In JITSIC we are not fighting crime as such but it can be drawn in as a consequence of working as a competent authority. In JITSIC we are trying to work in a cooperative way to bring a global tax picture together to stop people avoiding their tax obligations and ensure they pay the correct amount in the right jurisdiction.
How successful do you think JITSIC has been in curbing abusive tax avoidance transactions, arrangements and schemes? What has been the key to this success?
JITSIC is an important component in the tax avoidance intelligence cycle of each JITSIC member country.
Our success emanates from the good working relationships we build up within the JITSIC community. This helps us better understand each other's tax systems, which leads to more effective information exchanges as well as enabling discussions where the law doesn't appear to be working as intended. There are several instances where cross border 'double dips' and avoidance have been curbed through our work.
What do you see as being the future direction for JITSIC and, more broadly, the global fight against tax crime?
JITSIC will continue to become more real time in its focus. As delegates we are planning to discuss the latest tax patterns and trends coming from our jurisdictions in a much more shared way.
I also see us coordinating some compliance activity for joint audits. We have already commenced joint 'cross jurisdiction' audits and are hoping to work with other countries to do more.
Some significant achievements of JITSIC over the past six years
Deterrence - the existence of JITSIC sends a message to the tax community about our collective intention to identify and curb abusive tax arrangements on an international scale.
Exchanges of information - we have exchanged critical information on a large volume of cases over six years. Notable examples include those cases involving foreign tax credit generators, structured financing, hybrid instruments and private equity cases.
Joint audits - The ATO has commenced joint audits and we are mapping out a process that has the potential to be used more widely. JITSIC delegates lead the discussion as competent authorities.
Representing the Australian view in international forums - JITSIC delegates have presented the Australian view at some major forums in Europe and the USA on aggressive tax planning, corporate governance and transfer pricing.
Expert to expert dialogue - JITSIC often sets up discussions for each country's experts to discuss. For example, banking specialists and new law.
Building and nurturing international relationships - ATO JITSIC delegates have built relationships with other JITSIC delegates by promoting efficiency in exchanging information regarding Australian issues and views both formally (through the exchange of information process) and informally (through daily discussions and phone hook ups).
Guest commentator: Dr Russell G Smith
Principal Criminologist, Australian Institute of Criminology
How much information should government departments provide in order to help guard against fraud? When does information become 'criminogenic'?
The term 'criminogenic' refers to the way information designed to prevent crime can inadvertently enable perpetrators to commit crime by making it more accessible or attractive.
Government departments often communicate to the public about complex and technologically sophisticated fraud methodologies in order to alert people to ways in which they can best protect themselves.
There is a temptation in times of easy and immediate communications to provide consumers with everything they need to know about how to protect themselves from fraud and dishonesty. Unfortunately, this cannot only assist consumers, but also potential offenders who are just as adept at surfing the fraud prevention web as those of us at risk of being victimised.
Fraud prevention advice can be misused to promote illegal behaviour in three main ways:
- By providing detail on how fraud can be perpetrated it can entice people to offend.
- Through providing information that predicts new methods of offending it can keep the criminals up to date with new technologies.
- By providing information on regulatory and enforcement activities that offenders can seek to circumvent.
Developments in payment card security measures is an example of where criminals have discovered the weaknesses of systems in order to commit 'skimming' and 'carding' offences.
In the context of financial crime, communications regarding the reimbursement of credit card fraud losses by banks may lead to laxness, when individuals engage in online transactions. Finally, the way that both offenders and victims are described can occasionally reinforce inappropriate perceptions. Arguably, it is better to describe those who commit fraud as 'criminals' rather than 'scammers' in order to emphasise the full import of their activities.
The solutions to these problems lie in striking a balance between the level of fraud prevention information provided and the risks that it may be misused.
Regulators need to understand offenders' motivations and should think carefully about how they are likely to react to fraud prevention initiatives and the subsequent information that flows from them. Before fraud prevention information is disseminated, agencies should engage in pilot testing to assess the impact of the measures.
Evaluative research is also needed to assess if fraud prevention information has been used and misused, so that risks of this nature can be avoided in the future.
How much information about fraud prevention and tax crime should we disclose to the community?
Organisations involved in fighting crime wrestle with this question daily.
As the nature of criminal activities change with developments in technology and globalisation, the Government's response needs to evolve in order to stay one step ahead of the would-be perpetrators.
The ATO is constantly assessing the need to inform the public against the potential risks that this may represent. Sometimes it comes down to the specific issue at hand - we might, for example, alert the community about a tax file number scam or an illegal early access to superannuation scheme.
We are prudent about what we say and when. For example, common sense dictates that we do not disclose all the workings of our sophisticated risk engines. And we generally do not give minute details about the specifics of fraud activities.
However, the ATO's general position is to be as forthcoming and transparent with the public as possible.
Through our annual compliance program, we tell the community what concerns us and where we will be focusing our efforts. We follow this up with taxpayer alerts and we publish rulings, benchmarks and media releases to communicate specific issues and risks.
We strongly believe that prevention is better than cure. By communicating where we are focusing our efforts, or where there are risks, we believe it gives taxpayers a chance to correct their behaviour before they get on the wrong side of the law.
At the end of the day, there will always be someone foolish enough to interpret our communications as instructions on how to commit crime. Our greater responsibility is to protect the vast majority of taxpayers who do the right thing, by providing them with timely and relevant information.
One example which demonstrates the positive effect of providing information to the public about our initiatives to detect potential tax evasion, is the recently closed Offshore Voluntary Disclosure Initiative (OVDI).
The OVDI offered substantial benefits for taxpayers who chose to voluntarily disclose income they had in offshore accounts, prior to the ATO asking them to explain why they had not declared the income.
Information about data-matching initiatives, access to international funds transfer data, and the use of Tax Information Exchange Agreements with other countries was widely disseminated through the media.
This resulted in a significant spike in call volumes to the voluntary disclosure line with more than five times the number of calls received for the same period the previous year.
Cybersmart provides activities, resources and practical advice to help children, teens and parents safely enjoy the online world. Cybersmart also offers training and resources for schools and materials for library staff.
Developed by the Australian Communications and Media Authority, Cybersmart is part of the Australian Government's Cybersafety Program, and contains a wealth of useful information about protecting your identity and personal information online.
The 'Financial tips and safety checks' page on the website for the Australian Securities and Investments Commission offers money tips, advice about financial products, and information about scams and warnings.
Protect your financial identity
Developed by the Australian Bankers' Association, the Australian High Tech Crime Centre and the Australian Securities and Investments Commission. The website provides information about how to protect your financial identity in everyday life and minimise the damage if a problem occurs. Go to www.protectfinancialid.org.au/
Meeting the needs of victims of crime
The impact of the NSW criminal justice system on crime
Read between the lines
Commonwealth Organised Crime Response Plan Overview
Stay smart online
The Australian Government's cyber security website provides information for Australian internet users on the simple steps they can take to protect their personal and financial information online.
Recent ATO speeches on tax and superannuation compliance topics:
See all recent ATO speeches at the ATO website.
How to report a tax crime
Help the ATO ensure everyone pays their fair share. Report information on tax crime to the Tax Evasion Referral Centre on 1800 060 062.
For information on how to report tax crime online, by mail or fax or for answers to frequently asked questions, contact us.
Making a voluntary disclosure
The ATO encourages taxpayers who have made a mistake in relation to their tax affairs to make a voluntary disclosure. This can lead to reductions in shortfall penalties and interest, particularly if the voluntary disclosure is made before the notification of an audit.
Voluntary disclosures can be made in writing, electronically, by phone, or via other methods available in specific circumstances.
Full details about how to make a voluntary disclosure can be found at www.ato.gov.au
Offshore Voluntary Disclosures
Taxpayers with undisclosed income from offshore activities can contact the ATO to make a voluntary disclosure.
Full details about making a voluntary disclosure, including information on eligibility can be found at www.ato.gov.au
We value your opinion and we're interested in your response to this magazine. Please send any comments or suggestions to firstname.lastname@example.org
1 Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, since 12 December 2008, reporting entities must submit a Suspicious Matter Report (SMR) if, at any time while dealing with a customer, the entity forms a reasonable suspicion that the matter may be related to an offence, tax evasion, or the proceeds of crime. For many reporting entities, SMRs have progressively replaced suspect transaction reports (SUSTRs), which fall under the Financial Transaction Reports Act 1988. Due to the overlap of these report types being submitted this article refers to these reports collectively as 'suspicious activity reports'.
2 The number of disseminations exceeds the number of reports received during the year, as a single report may be sent to multiple agencies and disseminations may include reports received in previous years that relate to current partner agency investigations.
3 Source: Australian Bureau of Statistics (ABS), ABS Report 4528.0. Personal Fraud (2007).
Last Modified: Friday, 18 January 2013