Arising from a Costigan recommendation, a special prosecutor is appointed under new legislation and proceeds to prosecute principal bottom of the harbour actors using conspiracy charges. A new offence is created.
The week after the tabling of the McCabe-Lafranchi report Howard, having noted the inspectors' contention that prosecution action was open in bottom of the harbour cases, wrote to the Attorney-General asking that the Solicitor-General review the matter.
The Perth case was again used as a basis for consideration with the Solicitor-General, Maurice Byers QC, advising that prosecution action was open. With the aid of this advice, Murray Gleeson QC and Graham Hill were asked to draw up charges. They advised that some further evidence should be obtained. This was done, and charges drawn up.
Then, in his interim report No. 4, Costigan added to the call for action under pre-Crimes (Taxation Offences) Act laws and recommended, in paragraph 3.145, the formation of a task force to pursue available criminal and civil actions.
The Liberal government's decisions on this were announced on 24 August 1982. In the Senate, Senator Durack said:
Attention is also being given as a matter of priority to the prosecution of offences associated with 'bottom of the harbour' tax evasion schemes which are referred to in volume 1. In June this year the Treasurer (Mr Howard) and I took steps to obtain advice from the Solicitor-General in regard to the availability of prosecution action in the particular case dealt with in chapter 3 of volume 1. The Solicitor-General, in an opinion delivered later in the same month, advised that certain remedies were open. Advice was also sought from senior counsel in June on possible criminal proceedings in relation to a major promoter in Sydney. A final opinion is expected shortly. On the particular case referred to in chapter 3 of the report, the Crown Solicitor sent an officer from his central office in Canberra to Perth to work in association with the Australian Taxation Office to complete a brief to advise on evidence and to draw charges as appropriate. That brief has now been delivered to senior counsel.
More generally it has been decided to appoint a special prosecutor to concentrate special effort on action with a view to prosecution of persons who were directly involved in the promotion and execution of bottom of the harbour schemes. The special prosecutor will be assisted by a task force of lawyers, taxation officers and police. There will be liaison with the Royal Commission. Additional staff and resources will be provided as needed.
Legislation to enable the appointment of special prosecutors was introduced into the House of Representatives on 8 September 1982 by the Minister assisting the Attorney-General, Neil Brown. The House was informed on 22 September that the legislation had been assented to the previous night and that Roger Gyles QC had that morning been appointed as a Special Prosecutor to handle bottom of the harbour cases.
He immediately set about his task and in his annual report to 30 June 1983 was able to outline the progress he and his team had made. Much time and effort had gone into the setting up of his office and its systems and procedures. At year's end, Gyles' staff comprised 12 solicitors, 24 Australian Federal Police, 23 ATO investigators, five financial investigators and two Corporate Affairs Commission officers. Support staff brought total numbers up to 112.
Gyles reported that the ATO's numbers of identified strips - 4,000, and major company-stripping promoters - 40, had since been increased substantially. He observed that they involved 'a fraud investigation on an unprecedented scale'. This had led him to establish priorities, the basis for which was set out in his report. Speaking of available charges, Gyles said:
The only appropriate charge in cases occurring prior to December 1980 is breach of s.86 Crimes Act 1914 (Commonwealth), which enacts several statutory conspiracy charges, principally in this connection conspiracy to defraud the revenue. It is anomalous that there is no charge of defrauding the revenue simpliciter. Thus, conspiracy trials, with all the attendant problems for both prosecution and defence, are mandatory. This requires legislative attention. Charges under the Crimes (Taxation Offences) Act 1980 are available in matters occurring after it came into force, but this does not completely solve the problems to which I have referred.
At an operational level, he reported that following advice from counsel retained prior to his appointment (this being the advice mentioned in the ministerial statement of 24 August) a prosecution had been initiated against named promoters in the Perth case, much referred to in previous chapters. He added that teams within his office were currently examining a range of additional matters involving the named persons. It was also reported that priority was being given to some post-Crimes (Taxation Offences) Act cases referred by the ATO.
A year later, in his annual report for 1983-84, Gyles reported considerable progress in prosecution activities. By then, he was working with the aid of 162 staff. Identified company strips had grown to 6,000, with the year-end number of persons (other than principals of stripped companies) participating in company strips being 3,171, a still growing number. Some 150 of the persons were identified as high priority targets, virtually all of these persons had been the subject of some investigation, Gyles reported.
The principal promoter in the Perth case had been identified as the subject of early action in Gyles' previous annual report, along with three other groups of promoters. The activities of these four groups accounted for more than 50 per cent of identified strips. Each of these investigations had been brought to the stage where charges had been laid, with likely further charges to follow. Gyles noted that the particular charges against the Perth group referred to in the previous report would not be proceeded with as separate matters, but would be relied upon as part of the more comprehensive series of charges against those persons, hearing of which had commenced in July. One associate of the Perth promoter had pleaded guilty to a conspiracy charge and been sentenced to two years. Charges under the Crimes (Taxation Offences) Act had been laid against two persons but Gyles observed that much remained to be done. He published names of the 28 persons who had been charged and brought before a court.235
By that time the government had announced the setting up of an office of Commonwealth Director of Public Prosecutions (DPP), with that person when appointed to take over the special prosecutor's unfinished cases. Gyles' term ended in September 1984 and he estimated that a further 12 months beyond that would be needed to adequately investigate the inner circle of promoters. By that time, all appropriate charges against that group should have been laid, with the litigation to run its course.
The special prosecutor's final report, to 21 September 1984 was in the nature of a postscript. Two groups had been committed for trial and three major investigations brought to the stage where the evidence warranted the laying of charges:
A number of charges have now been laid for breaches of the Crimes (Taxation Offences) Act. Despite considerable investigation, in my opinion the evidence so far gathered has not warranted laying charges against any vendor shareholder or adviser to a vendor shareholder.
Gyles gave details of the cases of 54 persons who had by then been brought before a court and of seven where warrants had not yet been executed.236 He added that a major review completed for the guidance of his successor had led to a revised list of high priority targets comprising 166 people. A considerable amount of investigation was still to be done. He noted that he had drawn the attention of the DPP to two particular subjects of investigation which would require special consideration:
The first concerns certain banks. The reports of Messrs. Macabe [sic] and Lafranchi, Mr Costigan Q.C. and Mr Redlich all reveal the important role of certain banks in facilitating the activities of tax avoidance promoters and others involved in questionable activities. Much material has come to my attention to the same effect. The destruction of records and the lack of co-operation by the banks will make investigation difficult. Such an investigation will, in any event, require considerable resources. It may best be done in relation to a wider range of activities than simply company stripping. To be effective it may require compulsory powers. These are issues which require consideration at a policy level.
The second concerns the possible implication of a small number of former tax officials in aspects of company stripping.
A final note from Gyles recorded his pleasure that action had been taken to enact a substantive offence of defrauding the Commonwealth, and to increase the Crimes Act section 86 penalty.
Defrauding the Commonwealth made a crime
This had been effected by amendments to the Crimes Act made by the Statute Law (Miscellaneous Provisions) Act (No. 2) 1984. A new section 29D was inserted in the principal Act, making defrauding of the Commonwealth liable to a fine of $50,000 or imprisonment for five years, or both. The second reading speech in the Senate gave this explanation:
The Special Prosecutor, Mr R.V. Gyles Q.C., has drawn attention to an anomalous situation: although there is an existing offence of conspiracy to defraud the Commonwealth, the Crimes Act 1914 does not contain a substantive offence of defrauding the Commonwealth. In some circumstances, conspiracy trials, with all the attendant problems for both prosecution and defence, become necessary due to this deficiency. The insertion of a new section 29D cures this defect by creating a new offence of defrauding the Commonwealth or a public authority under the Commonwealth.
The Act is also amended to bring the penalty for the offence of conspiracy to defraud the Commonwealth into line with the penalty that may be imposed for offences against the Crimes (Taxation Offences) Act 1980. The same penalty is to apply to the new offence of defrauding the Commonwealth, namely a penalty of $50,000 or imprisonment for 5 years or both.
Where did all this prosecution activity end up? The principal promoter in the Perth case was convicted on 4 October 1985 on one count of conspiring to defraud the Commonwealth contrary to paragraph 86(1)(e) of the Crimes Act and sentenced to two years and nine months imprisonment. From the annual reports of the DPP it can be seen that ultimately there were 28 convictions with proceedings for all the charges completed on 18 August 1992.237
Other schemes' prosecutions
The alert to the issue of tax-related prosecutions brought about by the bottom of the harbour experience was to lead the ATO in mid-1984 to consider the question of prosecution of persons implicated in some of the more flagrant tax avoidance paper schemes. This was initially taken up with the Crown Solicitor, one point being that information in the hands of the Tax Office fell short, in evidentiary terms, of what could be needed to launch prosecutions. Cases were later referred to the Director of Public Prosecutions, with his annual reports for 1986-87, 1987-88 and 1988-89 referring to actions taken. Prosecutions of bottom of the harbour participants were to occupy much of the time and attention of prosecution authorities.
Civil remedies
When Special Prosecutor Gyles was appointed he was, like Special Prosecutor Robert Redlich, given civil remedy powers. The Attorney-General's second reading speech, referring to bottom of the harbour frauds, said that a purpose of the appointment was to 'assume overall responsibility . . . for coordinating the recovery by civil remedies under existing law of the amounts thereby lost to the Commonwealth'.
Gyles' civil remedies function came to be quite a bone of contention between him and the ATO, with the Commissioner taking a less expansive view of the special prosecutor's proper role than did Gyles. Correspondence between the two office-holders reflective of their stances is, along with commentary, to be found in Gyles' annual reports and in the Commissioner's annual report for 1983-84.
In tabling Gyles' 1983-84 annual report on 13 September 1984 the Attorney-General, Senator Gareth Evans, made a tabling statement in the course of which he observed that it was 'unfortunate' that differences had occurred between the two office-holders. He added that the letters exchanged indicated that the Commissioner was prepared to 'fully cooperate' with Gyles except in two areas. One of these concerned section 260, with Gyles having been active, (and ultimately successful) in action that resulted in section 260 being given a new lease of life. This is discussed in Chapters 52 and 53, but before then it is appropriate to catch up on some wider aspects of the schemes story.
Sections within Chapters 41-50
Last Modified: Wednesday, 16 June 2010