Targeting tax crime: A whole-of-government approach - March 2012
Targeting tax crime: A whole-of-government approach - March 2012
The sixth issue of Targeting tax crime: a whole-of-government approach (PDF, 3.04MB) is now available.
Commissioner's message
We are fortunate that most Australians value their privileges of citizenship and recognise the important role played by the tax and superannuation systems to their wellbeing.
The community's embrace of the rights and responsibilities of citizenship is the backbone of Australia's tax and superannuation systems. This, in combination with an efficient and adaptable tax administration of high integrity, helps our nation ride the tides of economic vicissitude better than many other countries.
The threat to our economic wellbeing comes from those who don't support our tax system. We only need to look at the financial crises facing some of our member Organisation for Economic Cooperation and Development (OECD) countries to see that a climate of large-scale tax cheating, combined with other negative fiscal factors, can lead to declining revenue and a chronic debt crisis.
While threats to our economy can be concerning, it is also an opportunity to rise to the challenge, anticipating and responding to new threats with collaborative action.
Together with our Wickenby partners, we are steadfast in our determination to break down criminal networks and deter participants and promoters of tax crime to preserve and protect the wellbeing of Australians.
Through new technical capability and technology, and partnering with state, federal and international jurisdictions, we are also playing our part in the Commonwealth's Organised Crime Strategic Framework. The objective is to target the most significant threats and reduce the social and economic impacts of organised crime on the Australian community. This is further strengthened by a deepening level of co-operation among tax administrations and law enforcement agencies around the world, and by international commitment to greater transparency.
At the ATO, we are focused on identifying and mitigating compliance risks, influencing administrative policy at a global level and championing international transparency. Through cooperation at both a national and international level we can bring to light more and more instances of tax evasion and help make a more hostile environment for evaders and potential evaders.
Australia signed the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters at the G20 Cannes Summit in November 2011. Thirty-four countries are now party to this convention, which allows for assistance in collection, exchange of information and service of documents. This is another big step forward in creating international transparency to assist our efforts in dealing with offshore tax evasion.
In this edition of Targeting tax crime, we explore the relationship between those who threaten the financial security of the Australian community through crime, evasion and avoidance and the community's response in detecting and deterring them.
Once again, we invite you to subscribe to Targeting tax crime to have future editions of the magazine delivered directly to your inbox, so you never miss an issue. Otherwise, stay tuned to www.ato.gov.au/targetingtaxcrime
Michael D'Ascenzo
Commissioner of Taxation
Australians enjoy one of the highest qualities of living in the developed world and this is due in no small part to our strong economy and robust but fair taxation system.
While the global economy still faces many challenges, Australia has strong governance frameworks that will help us to manage the impacts of these challenges, just as they did during the global financial crisis in 2008.
The policy and governance systems that have been introduced in Australia under successive governments have created an environment of regulatory stability, transparency and a culture based on the notion that everyone should pay their fair share.
We have developed our robust systems and policies over the past 101 years and together, working as a team with businesses and individuals, we can ensure that our world-class system of governance continues to help build a strong and resilient economy that delivers for all Australians.
The Hon David Bradbury
Assistant Treasurer
Minister Assisting for Deregulation
Potential tax evaders are thinking twice about using offshore havens to hide money, as Project Wickenby demonstrates Australian government agencies' increasing ability to track down funds.
Since launching six years ago, with the intent of preventing potentially billions of dollars of public funds being hidden offshore, Project Wickenby is having the effect of returning fund flows to Australia.
A recent report by the Australian Transaction Reports and Analysis Centre (AUSTRAC) shows that from 2007-08 to 2010-11 there was a $12 billion decrease in fund flows to the major jurisdictions where Project Wickenby has focused attention.
In particular, fund flows to Australia from the secrecy jurisdictions which have been under the Wickenby spotlight increased by around $5 billion last year, compared to the 2007-08 financial year.
AUSTRAC figures also show a 50% decline in funds flowing to Vanuatu, 80% to Liechtenstein and 22% to Switzerland.
Fewer entities are transacting in secrecy jurisdictions under our scrutiny. In the last five financial years there was a 77% decrease in the number of entities that were initially transacting with Vanuatu.
We have information exchange agreements with 32 countries, with the addition of Liechtenstein late last year.
Through new technical capability, technology, national and international cooperation, and support from the judicial system, we are closing the gaps, and punishing those who are driven to defraud the tax system. The message to those involved in tax crime is simple - we are watching and it's not a matter of if you'll be caught, but when.
Project Wickenby results at a glance
At January 2012:
- more than $1.2 billion raised in tax liabilities
- 2,925 audits and reviews completed
- 65 people charged with serious offences
- 22 people convicted of serious offences.
The Honourable Ray Finkelstein, QC
The Honourable Ray Finkelstein, QC, retired Federal Court judge, shares with us his perspective on the sentencing of white collar criminals versus 'true criminals'.
There is a longstanding myth, slowly being eroded, that criminal behaviour is largely committed by those in a lower socio-economic class. The studies I have seen that address this define 'true crimes' as those that (1) directly harm or violate the rights of others or (2) constitute inherently immoral activity.
When it comes to the punishment of true crimes, a court considers a blend of just desserts, reformation and crime control: rehabilitation, retribution, deterrence, incapacitation (prison) and restitution.
In the world in which we live it should be evident that it is wrong to assume that criminal behaviour is confined to lower socio-economic class. There is significant law breaking by persons from the middle classes.
When these people commit crimes they are seen to be, and are, treated differently. This is especially true in the case of 'white collar crime'. Here I refer to crimes committed by people of high social status in the course of their occupation.
One thing that stands out about white collar crime is that it is not due to poverty and the like. Also the 'cost' of white collar crime is probably much higher than true crime. Compare a bank robber who steals $25,000 from a neighbourhood bank with the corporate manager who steals $2 billion from his company.
How do judges punish white collar crimes? As a general rule the judge's rationale in sentencing is different from sentencing true criminals. General deterrence - that is deterring others in similar positions from engaging in like behaviour - is usually the sole guiding principle.
Retribution seems to have little role to play. Most judges believe that the humiliation, loss of job and loss of status experienced by white collar criminals when they are apprehended, brought to trial and punished, is usually sufficient punishment.
There are, of course, some white collar crimes where an element of punishment cannot be avoided. This is usually confined to crimes that involve a breach of public trust, a serious effect on the market, or a very large fraud loss.
What is interesting is that even though deterrence is the primary goal - imprisonment, when available, is regarded as a last resort. Probably the reason is a belief that imprisonment has a far greater detrimental effect on a white collar criminal. In some cases the judge will take into account the accused's ability to make restitution as a factor that eliminates the need for a prison sentence.
This approach to sentencing inevitably leads the public to the conclusion that there is a law for the rich and a law for the poor. The problem that leads to this perception is what I see to be a tension between the aim of general deterrence (which usually requires a harsh penalty - often imprisonment if it is available) and the particular (personal) attributes of white collar criminals. When resolving this conflict, judges tend to compromise - they impose weekend sentences, short sentences or suspended sentences.
I do not agree with this approach. It is, I think, necessary for white collar crimes, especially those that involve violations of trust, market manipulation, share market manipulation, anti-trust violations and the like to be regarded in the same way as other fraudulent conduct such as false pretences, or obtaining money by deception. They should be regarded in the same way because they are of a similar character. That is to say, most (I do not say all) white collar crimes are not really different from true crimes.
If the distinction between the two kinds of crimes is removed this would reduce the problems resulting from inconsistencies in sentencing.
A more difficult issue is whether it is necessary to relax some features of criminal law for the purposes of combating white collar crime.
The fight against white collar crime is an immense task and regulatory authorities have limited resources. Establishing a guilty mind at trial is always difficult and sometimes impossible. The courts' narrow approach to construction of statutes often defeats Parliament's true intention. The difficulty of obtaining independent (for example, documentary) evidence is well known. All this inhibits the proper pursuit of white collar crime. The courts do not possess power to overcome all these difficulties. Parliamentary intervention is necessary in some areas; but courts do have an essential role to play.
In the first place when acting as a court of construction the court could adopt a pragmatic approach to the definition of crimes. Second, as a court of construction the court could limit those crimes in which the prosecutor must establish a guilty mind. Finally, perhaps there may be some crimes where the courts can state that the standard of proof should be lower than 'beyond reasonable doubt' and suggest that parliament should bring about the necessary change. The most likely contenders are those statutes which have introduced civil penalties for contraventions that are also criminal. Parliament has already decided that a lower standard of proof is in order for these offences, provided there is a lower penalty. In substance, all that is needed is for parliament to legislate for an appropriately higher penalty for those offences.
In 2011, Task Force Galilee was launched by the Australian Crime Commission (ACC) board to tackle the growing threat of serious and organised fraudulent investment scams targeting the savings of Australians.
Organised criminals, typically based offshore, are peddling fraudulent investment scams which have resulted in significant personal losses for many Australians - in some cases targeted individuals have lost their entire life savings.
While these types of scams are not new, it is the scale of the threat that concerns law enforcement agencies. Based on initial indications, more than 2,400 Australians have lost in excess of $93 million to serious and organised fraudulent investment scams since 2007.
The Australian economy is known to have been less affected by the global financial crisis than other nations, making those approaching retirement a particularly attractive target.
Generally, victims are males aged over 50 years who have a high financial awareness, are well educated and have invested before. As many of the victims are embarrassed or unwilling to report their loss, the full impact is believed to be far greater than what has been reported.
'In many cases, potential victims receive cold-calls that use cleverly tailored and scripted language to persuade and pressure people to invest money. The calls are supported by highly sophisticated websites to trick consumers into thinking investment opportunities are legitimate,' said ACC Chief Executive Officer, John Lawler APM.
Victims are convinced to transfer significant amounts of money electronically into one or more bank accounts (often offshore). This may be followed by requests for further money transfers with the promise of either greater investment returns or implied threats of litigation for breaches of contract. Sophisticated fraudulent websites are used to demonstrate the victim's return on their investment, when in reality their money is long gone.
Industry stakeholders play an integral part in raising awareness and communicating the threat of these serious and organised investment scams to the Australian community.
Task Force Galilee has been engaging with a range of industry sectors, including banking, superannuation, financial advisory and community organisations, and internet service providers, to develop strategies to prevent and disrupt serious and organised fraud.
Task Force Galilee
Task Force Galilee was established by the ACC board and comprises law enforcement and regulatory and service delivery agencies. Membership includes ACC board agencies, as well as:
- Australian Competition and Consumer Commission
- Department of Broadband, Communications and the Digital Economy
- Department of Immigration and Citizenship
- Department of Human Services
- Australian Transaction Reports and Analysis Centre.
Keeping your money safe
Protect yourself and others against serious and organised fraudulent investment scams.
- Alert your family and friends, especially anyone who may have savings to invest.
- Report suspected fraud to the Australian Securities and Investments Commission, via www.moneysmart.gov.au or 1300 300 630, or local police. Any information that can be provided such as company name, location and contact details will assist with subsequent investigations and enquiries.
- Hang up on unsolicited phone calls offering investments.
- Check any company you are discussing investments with has a valid Australian Financial Services Licence at www.moneysmart.gov.au
- Visit www.moneysmart.gov.au or call 1300 300 630 for further information.
The government expects to raise an additional $245 million in taxes and penalties over a four year period if new legislation to combat fraudulent phoenix activity is enacted later this year.
In the 2010-11 Budget the government announced a range of proposals to combat fraudulent phoenix activity. Draft legislation is expected to be re-introduced into parliament during the Autumn 2012 sittings after being postponed last year to allow for further consultation.
Separate to this legislation, an additional $22.1 million in extra funding has been allocated to enable the ATO to expand its focus on reducing fraudulent phoenix activity. This will include a coordinated program of raising awareness, compliance and debt collection as well as working closely with other government agencies to improve the exchange of intelligence.
What is fraudulent phoenix activity?
The ATO defines fraudulent phoenix activity as the evasion of tax and superannuation guarantee liabilities through deliberately and systematically liquidating related corporate trading entities.
There are many legitimate challenges associated with running a business but some businesses use liquidation as a means of avoiding financial obligations, including employee entitlements such as superannuation guarantee.
In its most basic form, fraudulent phoenix activity involves a company carrying on a business and accumulating debts without any intention of ever repaying those debts. This is done for the purpose of wealth creation or to boost cash flow. The company is placed into liquidation once it gets into an insolvent position and the business then continues via another corporate entity, controlled by the same person or group of individuals.
To report suspected phoenix activity visit www.ato.gov.au/reportevasion.
Case Study: Jail time for phoenix operators
A Perth based earthmoving, garden supplies and property development business created bogus payment summaries, moved employees between related companies and failed to remit monies withheld from employees' wages to the ATO. The business owner then deregistered the (non-compliant) companies to help reduce the risk of detection by authorities.
In 2010, the principal company director was sentenced to five years and three months jail for defrauding the Commonwealth of $6.7 million in unremitted taxes. He was also bankrupted following an investigation into his personal tax affairs.
A number of other people associated with this fraud have also been prosecuted and jailed, including a former tax agent.
Ross Greenwood
This issue we are joined by Ross Greenwood, business and finance media commentator, who shares his perspective on community attitudes toward the ATO as well as the imperative for ongoing adaptability in a world that is changing at an ever-increasing pace. Ross is the Nine Network's business and finance editor and host of the top rating radio program, Money News.
Over the years I have come to recognise that the ATO is much, much more than a collection, administration and compliance agency. It is a massive network of communication, IT, legal, enforcement, human resources, accounting, and government.
That's what it is, a bigger question is what does the community and its elected representatives want it to be?
The quotation that every tax officer knows, inscribed on the Internal Revenue Service head office in Washington is: 'Taxes are what we pay for a civilised society' by Oliver Wendall Holmes.
If more in the community embraced that message then the job of compliance would be so much easier. The reputation of all Australian tax officers would be so much healthier. It would be as it should be: a respected job upholding the welfare of the community.
I know this is where the ATO has been evolving for many years with the improved use of technology and the taxpayer charter to improve the treatment of taxpayers as customers, not suspects.
This has been a long quest, as can be seen by the quote of former ATO Commissioner Robert Ewing in 1920: 'Suspicion of taxpayers by officers of the Department breeds distrust of the Department by taxpayers.'
But there is the other side, equally true.
'Now of course I am minimising my tax. And if anyone in this country doesn't minimise their tax they want their heads read. Because as a Government, I can tell you, you're not spending it so well that we should be donating extra.' That from the late Kerry Packer, and a sentiment that runs deep inside many Australians still.
Packer's sentiment goes to the heart of the dilemma between the administration of the ATO and the political heart-beat in Canberra. The philosophy of any new administration often means serious adjustment to the way the ATO responds. Yet it must do so silently and sincerely. For that, foremost is the ATO's culture and ethos.
For this reason, the hearts-and-mind campaign must be never-ending. Regardless of the political preference of the government in power, the ATO must remain trusted as being an honest, open organisation that is recognised for fairly collecting the revenue that keeps Australia strong. A small glance at the tear-gas filled streets of Athens in recent months might serve as a reminder of what occurs when there is a sustained break-down in public finances and tax compliance.
In Australia, in my opinion, the reputation of the ATO is well and truly intact, despite some vigorous public and political attacks in the past year. It was no different in Robert Ewing's day. It will be no different for the ATO and Commissioner 90 years from today.
Where rightful criticism levelled at the ATO, and other institutions, will be their inability to adjust to public shifts in communication, in banking, in work practices and business (on this subject I checked and, yes, the ATO has recently started a Twitter account, perhaps the most efficient and powerful means of communication today).
In the middle of one of the most prosperous eras in our nation's history, the pressures are greater than ever. The big economic challenge for Australia is to improve productivity in the face of a high currency and increasing difficulty for retailers, manufacturers and more service industries. And the ATO is not immune from the pressure of doing things better, with fewer resources.
Then there is the challenge of our ageing population. The tax system is the key player by progressively adjusting to the times while supporting companies and individuals in need while diligently pursuing its collection duties.
And this rate of change will not stop: cannot stop. Consider even in the past 18 months the explosion of online retailing (both local and international) and the challenges of trying to pursue cross-border taxation schemes. Electronic wallets will shortly change the way we transact and with more use of smart-phones, even the ubiquitous credit card could go the way of the portable cassette player within a decade.
Of all the assets of the ATO, adaptability must be among the first and foremost.
In the six years since Project Wickenby began targeting the abuse of offshore tax havens, funds have not only started flowing back into Australia, but community attitude towards tax cheats appears to be shifting.
The vast majority of taxpayers do the right thing and pay their fair share of tax but there will always be those who deliberately seek to avoid their obligations.
In the current climate of economic uncertainty, there is increasing angst about tax cheats and public tolerance towards those deliberately funnelling cash offshore is starting to wane. This shifting attitude is echoed in comments from judges during sentencing in recent criminal prosecutions, such as this remark by a Melbourne judge: 'Your offending diminishes the ability of government to provide for community needs, as well as, it requires and imposes unfair burdens on honest citizens who pay taxes.'
This shift is also being reflected in the media, with coverage becoming increasingly positive. Importantly, it is being made clear that it is not the government who is the victim of tax crime, but the Australian community who rely on the public goods and services provided through a fully functioning revenue system.
It is the goal of the ATO and our partner agencies to ensure tax cheats are brought to account and prevent further evasion. By providing for the long term success of the tax system, we are ensuring an equitable, prosperous society.
The ATO is rolling out new data matching initiatives to detect those deliberately using cash to hide income and avoid paying their fair share of tax.
According to Senior Assistant Commissioner Katie Welsh, 'with increasing sources of data in 2012, our ability to identify people who haven't declared all of their cash income or who are not lodging returns at all has increased. Therefore we have a greater chance of finding people who are doing the wrong thing.'
'It's just one of the ways we identify those operating outside of the system, who don't just break the law, but cheat the Australian community.'
We cooperate and share information with a range of bodies including state and Australian Government law enforcement agencies, as well as other government departments and agencies. Existing data matching programs used to detect cash economy activity focus on credit and debit card transactions by businesses and motor vehicle purchases of individuals or businesses.
New data matching programs focus on the building and coffee shop industries. Coffee supplier and building industry data has been obtained to identify businesses not correctly reporting their sales, operating off-the-books or underground, and risks of non-compliant behaviour of those involved in the coffee industry
'The ATO takes very seriously the responsibility we have been given of ensuring better compliance with the tax system', Katie said.
'Our intent is to identify those participating in the cash economy who are potentially skimming some or all of their cash takings or in other ways not reporting all of their income.
'Our message is clear. If you are not paying your fair share of tax on all of your earnings, you will be caught. It's how we ensure a level playing field for everyone.'
In the past year the ATO matched more than 500 million transactions.
Where appropriate, data matching is used to support default assessments of a business' tax liabilities.
For more information about data matching programs and our cash economy compliance activities visit www.ato.gov.au/casheconomy
Record keeping
A clear link exists between compliance with tax obligations and good record-keeping practices. Having complete and accurate business records helps a business to ensure it is meeting all of its tax obligations and can assist in substantiating business performance. Record keeping is therefore an important focus of the ATO's compliance, assistance and education strategies.
This year the ATO is paying particular attention to the plastering and coffee shop industries to provide the assistance people in these industries need to meet their obligations.
In this edition we talk to Tim Dyce, ATO Deputy Commissioner Aggressive Tax Planning about the shifting nature of tax avoidance schemes and how the ATO is keeping up with the challenge.
There was a lot of publicity around the bottom of the harbour schemes of the 1970s and the mass marketed schemes in the 1990s. Are tax avoidance schemes still a problem today?
Unfortunately, there will always be tax avoidance schemes as long as there is a tax system.
As former ATO Commissioner Trevor Boucher states in his book Blatant, artificial and contrived: Tax schemes of the 70s and 80s, 'all countries must face the prospect that some taxpayers will seek by means that they hope or believe to be legal to escape tax that the country's tax law requires to be paid'.
Our job is to decrease the supply of, and demand for, these arrangements by educating the community about the pitfalls of promoting and participating in tax avoidance.
What are the challenges for the ATO around tax avoidance schemes in 2012?
Tax avoidance schemes in the new century are much less obvious than those of earlier eras. The use of subtle marketing and the advent of social media makes it more difficult to monitor promoter activity, placing a strong reliance on intelligence from within the ATO as well as tax intermediaries and the wider community.
The participant market is also changing. The resources boom has resulted in a new generation of cashed-up investors. There are also those investors displaced by the collapse of the managed investment schemes industry who are seeking substitute investment opportunities. We need to ensure there is information and support available to help potential investors avoid getting caught up in a scheme.
While schemes are generally less overt than they used to be, there is growth in the incidence of structured loans and retail financial products with high risk features being marketed widely without the support of a product ruling. Some of these products are designed to offer significant tax benefits with little or no commercial purpose by containing artificial or contrived features such as complex dividend swap agreements, franking credit trading, synthetic investment structures and deferred purchase agreements.
Uncertainty caused by the current economic climate has provided an environment for schemes to develop, such as illegal early release of superannuation and abusive home mortgage schemes. Others exploit social conscience by promising inflated tax deductions for the donation of goods to charity.
What is the ATO doing to prevent another outbreak of tax avoidance schemes similar to what we saw during the mass marketed schemes era?
Much has changed since those types of schemes were prevalent in the 1990s. History has shaped our vigilant attitude to tax avoidance schemes. As an organisation we have made improvements to our risk analysis and intelligence activities, allowing us to better capture information on emerging risks. We also now have a range of remedies such as taxpayer alerts to provide an early warning of existing or emerging potential schemes. We encourage investors to ensure complex arrangements are covered by a product ruling and implemented as described, or to seek a private ruling to gain certainty about the tax consequences before entering into the arrangement. We also encourage investors to seek professional advice from someone not associated with the investment.
Importantly, we now have the capacity to take early and firm action against scheme promoters through application of the promoter penalty laws. These laws were introduced in 2006 and provide for tough penalties against scheme promoters, and allow for civil penalty proceedings in serious cases.
We have a number of civil investigations around tax planning arrangements in progress which are likely to proceed to litigation. Additionally we have initiated proceedings in the Federal Court on two potential contraventions of the promoter penalty laws.
By applying promoter penalty legislation as well as governance visits and early engagement with advisory firms, banks and retail financial institutions, we are sending a strong deterrent message to scheme promoters. Scheme promoters need to know that we will not tolerate the integrity of the tax system being undermined and will use these laws accordingly. The message to the community is that tax avoidance is not acceptable.
As I said earlier, schemes are constantly evolving, however we are now well placed to detect emerging schemes, deter participation and deal with promoters to avoid any future outbreaks.
How the ATO deals with tax avoidance schemes
- Prevention and early warning to taxpayers and advisers through product rulings, taxpayer alerts and marketing and education activities.
- Early detection of emerging schemes through risk management and intelligence, including early engagement with tax intermediaries.
- Fair treatment of participants.
- Firm action against promoters, including application of the promoter penalty laws.
When it comes to defrauding the tax system, it is not just individuals who are victims. Stolen identities are used to try and claim benefits fraudulently. When this happens, identity crime becomes a risk to public revenue - revenue which is used to fund vital services.
Regardless of age, gender or income, we are all potential targets of identity theft. Your 'identity' includes bank account information, tax file number, your birth date or current address as well as passwords and credit card details.
For individuals whose identity is compromised, it is more than just a financial strain. Less frequently publicised is the emotional turmoil victims often experience as they attempt to reclaim their identity.
Uncovering debts, cancelling and reapplying for bank accounts, trying to clear your credit rating and re-establish your identity with multiple organisations can take many hours over an indefinite period of time. Some people have reported it taking years to recover their identity.
The ATO and its partner agencies are working to combat identity crime and prevent stolen identities being used for illegal purposes. For example, the ATO uses intelligent systems that automatically detect tax returns that are suspected of being lodged fraudulently using another person's identity.
Our risk and fraud detection models help ensure incorrect, invalid or fraudulent refunds are stopped before ever being paid out.
Between 1 July 2011 and 30 November 2011, the ATO's identity crime detection systems uncovered more than 7,300 suspect income tax returns with refund claims of around $36 million.
The best way to minimise the financial and emotional impact of identity crime is by reducing the number of potential victims. By being alert and keeping personal details secure, all individuals can play a part in stopping identity crime.
Help is available for people who have had their TFN lost, stolen or misused. Call the Client Identity Support Centre on 13 28 61 between 8.00am and 6.00pm, Monday to Friday. Information on how to protect your identity is available on the ATO website.
Case studies: Picking up the pieces
All persons mentioned in these scenarios are fictional.
Mary's pension was suspended after the ATO advised Centrelink that she had earned income above her pension threshold. However, Mary had not earned any additional income during that period. Mary rang the ATO to find out what was going on. The ATO's investigation found that Mary's identity had been used to try to claim a fraudulent tax refund. The return was subsequently reversed but Mary went several weeks without her pension.
Simone called the ATO after being contacted by a debt collector in relation to a car that it appeared she had purchased. She knew nothing about the purchase of this car. Someone had purchased the vehicle using finance and also applied for an Australian business number using her identity. Simone was required to prove that she had not purchased the car and was concerned about the effect that this would have on her credit rating. She was also worried about what other finance had been obtained unlawfully in her name that she didn't know about. The ATO advised her to contact the police and obtain a credit reference check. It took Simone several months to regain her identity.
Did you know?
A 2003 study commissioned by AUSTRAC indicated that identity fraud costs the Australian economy $1 billion every year.
Property developers who try and avoid declaring goods and services tax (GST) on the sale of property are more likely than ever to be contacted by the ATO.
In the 2010 Federal Budget, the ATO received additional funding to closely examine GST compliance as part of a dedicated four-year program to improve voluntary compliance and help provide a level playing field for business.
Deputy Commissioner James O'Halloran said, 'The ATO is matching information provided on business activity statements (BAS) and income tax returns with information from the Office of State Revenue and Land Titles Office to identify property developers who are not correctly reporting GST and income tax (including capital gains tax) on property sales.
'We have found some property developers deliberately avoiding their obligations by collecting the GST from the purchaser and then failing to pass this on to the ATO, either by not lodging their BAS, de-registering from the GST system or not reporting sales within their BAS.'
We are also looking at property developers who intentionally remain outside the GST system or claim credits during construction, but then fail to lodge their BAS and individual income tax return.
'These developers are cheating the community and breaking the law,' James said.
'Where we find people who deliberately avoid their tax obligations we will deal with them firmly through application of penalties, interest or even prosecution.
'We are also increasing our focus on taxpayers that continue to use complex organisational structures and insolvency or phoenix type activities to avoid their tax obligations.'
Every property transaction may have a tax consequence. If you think you have undeclared tax relating to a property sale, contact your tax agent or the ATO to make a voluntary disclosure.
More information on GST and property is available from www.ato.gov.au/property.
GST compliance program getting results
Key results for the 2010-11 financial year include:
- more than $290 million raised from additional GST compliance activities
- an additional $150 million in GST debt collected.
Scenario: There's no benefit to concealing information from the ATO
To celebrate the final sale of his townhouse development, George took his construction foreman, Ben, out to dinner.
Over the meal, George offered Ben some advice.
'Look mate, you're a great foreman and you have a keen eye. Get into developing. It's easy money. You buy a block of cheap land, whack some townhouses on it, sell them at a premium price and then understate the value on your BAS. I've been doing it for years.'
When Ben voiced his concerns to George that what he was doing was illegal, George replied, 'Don't worry about me mate. The ATO only go off what you put on your BAS'.
How wrong George was.
With additional funding provided to the ATO from the government the ATO has been progressively expanding its data matching capability. The ATO are now matching BAS and sales data with the Office of State Revenue and Land Titles Offices. It was only a month later when George received a phone call from the ATO that he realised he was in trouble.
In November 2011, George was sentenced to six months imprisonment. He was ordered to repay the $320,000 in GST from the sales of his townhouses and a penalty of $304,000 (calculated at 95% of the tax raised).
Australian Transaction Reports and Analysis Centre (AUSTRAC) is Australia's anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit. AUSTRAC works with law enforcement and other agencies to protect the integrity of the Australian financial system and fight serious crimes such as drug trafficking, tax evasion, fraud and people smuggling.
We sit down with Chief Executive Officer John Schmidt to talk about AUSTRAC's role in targeting tax crime and his vision for the years ahead.
What is your vision for AUSTRAC?
In coming years, AUSTRAC will expand its already strong contribution to Australian government efforts to combat national and transnational criminal activity.
In particular, our partner agencies will continue to call upon AUSTRAC's unique financial intelligence capabilities. There are 39 Commonwealth, state and territory agencies, including the ATO, which are authorised under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) to access AUSTRAC information.
Recent government investment in our intelligence systems will also deliver major benefits over the next couple of years, enabling us to provide more timely and targeted financial intelligence.
In a recent Chief Executive Officer forum, you spoke about increasing cooperation across Australian Government agencies to close governance gaps and better protect the system. How is AUSTRAC working with other government agencies towards this goal?
Government initiatives such as the Organised Crime Strategic Framework map out an integrated government approach to identifying and combating major crime threats. This integration ensures the specialist expertise of a range of agencies, including AUSTRAC, is focused on combating Australia's most serious crime risks.
Our intelligence is integral to the work of our partner agencies. We constantly engage with our key partners to ensure our strategic priorities are aligned with their primary investigative and enforcement activities. AUSTRAC publications, such as the recent Money laundering in Australia 2011 report and our series of typologies and case studies reports, highlight the benefits and outcomes of this cross-agency cooperation.
How is AUSTRAC creating a more hostile environment for those involved in money laundering and associated activities in Australia?
AUSTRAC administers a comprehensive international funds transfer reporting regime which gives the agency excellent visibility of the movement of funds into and out of Australia. AUSTRAC shares its financial intelligence with both domestic and international agencies.
In cases of suspected offshore tax evasion, we can identify entities that move funds to secrecy jurisdictions and detect patterns of funds flows to new and emerging secrecy jurisdictions.
Case study four from AUSTRAC's 2011 typologies and case studies report is a good example of where AUSTRAC information was used to unravel an offshore tax avoidance scheme.
What is AUSTRAC's role in the international fight against money laundering and terrorism financing?
Advances in technology and globalisation mean money laundering and other criminal activities have become increasingly complex and transnational. For AUSTRAC, our partner agencies and our overseas counterparts, this trend means international cooperation and information sharing is more important than ever.
Our work with the ATO for Project Wickenby is a prime example of how financial intelligence can be used to combat transnational crime. Recent AUSTRAC analysis has shown a 22% decrease over three years in the total value of funds flowing out of Australia to major secrecy jurisdictions (such as Switzerland, Vanuatu and Liechtenstein).
How will the enhanced regulation of the remittance sector affect your agency's outcomes?
The remittance sector has been identified both nationally and internationally as being particularly vulnerable to criminal infiltration or misuse for money laundering purposes. Recent legislative changes give us greater power to regulate this sector, including subjecting remittance businesses to greater scrutiny when applying for registration with AUSTRAC so they can legally provide remittance services. We now also have more flexibility to take enforcement action against remitters who do not comply with their obligations.
This enhanced regulatory regime is designed to reduce the risk of remitters being used to facilitate serious crimes such as money laundering, terrorism financing, people smuggling and tax evasion.
What role does the community have in helping AUSTRAC in its work to prevent money laundering?
It is estimated that serious and organised crime costs the Australian community up to $15 billion a year. All Australians benefit from efforts by government agencies to reduce this criminal activity.
AUSTRAC regulates around 13,500 businesses. These entities represent a broad cross-section of the community and range from small pubs, clubs and bookmakers in rural areas, to major banks, financial institutions and casinos. In complying with the requirements of Australia's AML/CTF regime, these businesses play a significant role in helping to fight criminal activity and maintaining the integrity of the Australian financial system.
The customer identification and other procedures put in place by reporting entities are necessary safeguards to maintain the integrity of our financial system - and in turn help to prevent crimes such as money laundering and tax evasion.
Case study: Suspects jailed after using offshore scheme to avoid $4 million tax
Authorities investigated three suspects for their involvement in the use of an offshore scheme to defraud the Commonwealth and avoid paying almost $4 million in tax.
The suspects allegedly used an offshore scheme promoted by an overseas accounting firm to avoid paying tax:
The overseas accounting firm set up a fictitious intermediary company which charged the main company, owned by the suspects, for inflated business expenses on 44 separate occasions.
By artificially inflating their business expenses, the suspects reduced their company's taxable income and therefore the amount of income tax they were required to pay.
After the main company paid the inflated invoices issued by the intermediary company, the funds used to pay the invoices were diverted into offshore trust funds held in each of the suspects' names.
These undeclared company profits were subsequently channelled through the trust funds and bank accounts, and finally withdrawn by the suspects as cash from automatic teller machines in Australia.
Ultimately, two of the suspects were found guilty of conspiring to dishonestly cause a loss to the Commonwealth and sentenced to six-and-a-half years imprisonment.
Source: AUSTRAC typologies and case studies report 2011, case study four.
In his speech at the November 2011 Anti-money laundering and counter-terrorism financing conference, ACC Chief Executive Officer John Lawler highlighted the new and unexpected methods organised criminals are using to hide their money.
He said that tax havens and the finance industry have been regarded as the traditional means of hiding proceeds of crime. However, with law enforcement and regulatory agencies having access to more information, organised criminals are looking elsewhere to launder money.
So, how are they doing it? Mr Lawler suggests looking anywhere there is money to be found.
'There are vast sums of money passing through thousands of small, medium and large enterprises and through the delivery of government services, on a daily basis. Each of these sectors is vulnerable to exploitation by organised crime,' Mr Lawler said.
'I don't want us to be constrained in where we look for organised criminal activity because there is no chance the criminals are sticking to the rule book.'
The ACC has implemented two key initiatives in conjunction with their partners to stay one step ahead of the criminals and identify potential vulnerabilities early.
The first of these is a high risk funds methodology, which focuses on the movement of money.
'By analysing data on offshore money movements we can identify anomalies which might indicate illicit funds,' Mr Lawler said.
'This is where our partnerships with agencies such as AUSTRAC, and the private sector come in, and the benefits are very tangible.'
These partnerships allow the ACC to identify more opportunities to confiscate illicit funds, better target law enforcement efforts to disrupt criminal enterprise and contribute to an enhanced strategic intelligence picture to inform long term prevention strategies.
The second initiative is the National Criminal Intelligence Fusion Capability. Fusion builds on the high risk funds methodology by drawing on a much wider data set available across government agencies.
Since July 2010 to 31 December 2011, fusion has identified 73 organised criminal targets previously unknown to law enforcement. Several of these have been identified as laundering suspected criminal proceeds in excess of $100 million annually.
Case Study: Following the money
Last year, two women were charged with running a tax avoidance syndicate on behalf of a number of clothing manufacturers. It followed a referral to the Australian Federal Police (AFP) from the Financial Intelligence Assessment Team (part of the National Criminal Intelligence Fusion Capability) which had identified a syndicate allegedly facilitating avoidance of taxation obligations for a large number of clothing manufacturing businesses.
AFP members investigated the syndicate and executed eight search warrants on residential and business premises in western Sydney, seizing over $800,000 in cash and restraining more than $200,000 in bank accounts allegedly associated with the scheme.
It will be alleged in court that the women facilitated a scheme which allowed a number of businesses to siphon legitimate company funds through a series of 'shell companies'.
Anti-money laundering and counter-terrorism financing conference
2011 marked the second conference co-hosted by the Australian Transaction Reports and Analysis Centre, ACC, AFP, the Attorney General's Department and the Australian Bankers' Association.
The conference's theme, Financial intelligence: Global and domestic partnership and practices, success and challenges, focused on how government and industry can develop partnerships to prevent and disrupt money laundering and counter terrorism financing activities.
The conference brought together domestic and international speakers from government, law enforcement and the financial services industry. Video highlights from the conference can be viewed at: www.amlconference.com.au/podcasts.
How to report a tax crime
Help the ATO ensure everyone pays their fair share of tax. Report information on tax crime to the tax evasion referral centre on 1800 060 062.
Contact us for information on how to report tax crime or for answers to frequently asked questions.
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.
Read full details about how to make a voluntary disclosure.
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/offshorevoluntarydisclosure.
Websites to watch
In October, MoneySmart became the public face of the ACC board's campaign on serious and organised investment scams. MoneySmart provides information on how to identify an investment scam, how investment scams work, questions to ask and what to do to protect yourself.
Consumer Affairs Victoria this month released Stevie's Scam School, a series of six short videos to help small businesses identify common scams to coincide with National Fraud Awareness Week. Watch them at www.consumer.vic.gov.au/scamschool and subscribe for small business updates.
Information about tax crime can be found on the Tax and Crime page on the Organisation for Economic Co-operation and Development website.
For recent events and publications related to money laundering, visit the Australian Institute of Criminology website.
Commissioner's speeches
Find a full list of speeches on the ATO website.
Feedback
Feedback is always welcome. Email us at targetingtaxcrime@ato.gov.au with any comments or suggestions.
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Last Modified: Wednesday, 21 March 2012
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