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AUSTRAC is a primary source of information that identifies Australian taxpayers who may be engaged in tax evasion using tax havens. AUSTRAC routinely monitors domestic transactions over $10,000 as well as international transactions. There are currently five types of information reported to AUSTRAC:
- Significant cash transactions reports. These reports must be submitted by cash dealers/reporting entities and solicitors for transactions involving A$10,000 cash or more (or the foreign currency equivalent).
- Suspect transactions reports. These are lodged by cash dealers/reporting entities when they have reasonable grounds to suspect that a transaction, actual or attempted, may involve the proceeds of crime, the evasion of tax, or other breaches of federal, state or territory laws.
- International funds transfer instructions. These instructions must be reported by cash dealers/reporting entities for monies being telegraphically transferred or wired into or out of Australia. These instructions are reportable for any amount, whether paid by cash or otherwise.
- Cross-border movements of physical currency (CBM-PCs)/international currency transfer reports. CBM-PCs are reports about the movement of physical currency into or out of Australia. All movements of A$10,000 or more (or the foreign currency equivalent) must be reported.
- Cross-border movements - bearer negotiable instruments (CBM-BNIs). CBM-BNIs are reports of BNIs being carried into or out of Australia and are not mandatory. A police or customs officer may ask a person to declare whether they have any BNIs in their possession and may then require a report of the BNIs being carried.
New legislation is progressively expanding the range of information reported to AUSTRAC and the types of entities required to report. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 covers the finance sector, gambling sector, bullion dealers and some professions, such as lawyers and accountants that also offer financial services. These groups will be required to monitor and report on a wide range of services, such as opening accounts, accepting deposits, issuing travellers cheques and some gambling activities.
Analysis of AUSTRAC information
Of the information gathered by AUSTRAC, the most useful for identifying tax haven arrangements is international funds transfer instructions. These are instructions to transfer funds into or out of Australia. Most are reported by cash dealers, usually banks. For each dealing, AUSTRAC records details of the ordering customer, beneficiary customer, the account to which the funds are to be credited, the amount transferred and the sending and receiving institutions.
We use the information in these reports to identify participants and promoters of abusive tax schemes and tax evasion, as well as taxpayers who are hiding outside the tax system. In addition, we use AUSTRAC information to:
- monitor money movements into and out of Australia
- profile individuals and other taxpayers
- identify high-risk transactions
- identify and quantify compliance risks and develop compliance strategies
- select cases for further investigation.
Sometimes funds flow to and from Australia and tax havens indirectly through a third country. We use AUSTRAC information to analyse indirect flows to and from tax havens and, where appropriate, use our tax treaties with other countries to obtain information about funds that may flow through a third country (see Figure 3). Taxpayers may also need to provide evidence relating to the ultimate recipient of funds sent out of Australia.
Our investigations of a taxpayer or others (or the promoter) on other tax matters may lead us to the connection between the taxpayer and their hidden dealings with tax havens.
Other uses of AUSTRAC information
Analysis and reviews have identified individuals who have returned or migrated to Australia after accumulating significant wealth offshore through, for example, successful business ventures. We are reviewing these wealthy individuals.
International information exchanges
Australia has tax treaties with 42 countries that allow us to exchange information about offshore income and transactions. These exchanges of information are reliable and valuable sources for investigating abusive international arrangements.
Most information exchanges under the tax treaties are automatic - we regularly receive data about the foreign income of Australian residents, which we match against income disclosed in tax returns. Similarly, we provide our treaty partners with information about the Australian income of foreign residents.
In addition there are one-off, spontaneous exchanges of information about specific arrangements or taxpayers. For example, one of our treaty partners may obtain information about Australian taxpayers involved in a particular tax haven arrangement and provide this information to us.
We have also signed agreements with three jurisdictions that will allow us to ask them for information. These agreements will become an increasingly important part of our compliance activities.
Case study: Exchange of information - initiated by another country
During an investigation in the United Kingdom (UK), HM Revenue & Customs became aware that two Australian resident taxpayers who owned UK businesses had moved profits to tax havens by way of licensing and management fees. Consulting fees were also paid to a tax haven company for personal services that one of the Australian taxpayers provided.
HM Revenue & Customs provided us with the relevant information under the tax treaty between the UK and Australia. Our enquiries revealed that the two Australian taxpayers had not lodged tax returns in Australia. As a result of this exchange, we initiated action to bring these taxpayers back into the Australian tax system. One taxpayer has lodged outstanding tax returns and we are raising default assessments and penalties in relation to the other.
Case study: Exchange of information - initiated by Australia
The ATO is investigating an arrangement in which an Australian company received a loan from a UK company where the majority of funds were sourced from a Jersey bank account. It was claimed that the UK company was a financial institution, but there were no public records to confirm this. In addition, there were connections to a tax agent who had previously participated in aggressive tax planning arrangements involving offshore entities.
Australia requested an information exchange from HM Revenue & Customs, which supplied documentation suggesting that the UK company was a nominee for a superannuation fund based in Samoa.
Information from financial institutions and other external sources
We use our access powers to obtain information about transactions with tax havens from banks and other financial institutions operating in Australia. For example, we may request full details of the bank account through which funds have flowed to or from a tax haven, information about related bank accounts, and documentation that shows the background to the transaction.
We can access external data sources to investigate particular taxpayers or as part of a broader data-matching project to identify cases for further action.
External data includes, for example, company information that ASIC holds and data that state and territory bodies hold on real estate acquisitions and disposals.
Credit and debit card transaction data
Offshore credit and debit cards are actively marketed on the internet and have been used to access income or wealth that is hidden offshore in tax havens.
We have developed methods to obtain transaction data for offshore-issued credit cards used in Australia. Other tax administrations have also increased their focus on credit and debit card risk and in some cases have passed on details obtained about Australian residents holding offshore cards. We have started audits on a number of taxpayers who hold offshore credit and debit cards.
Tax returns and supporting schedules
We analyse tax returns and the accompanying Schedule 25A (which some taxpayers must lodge with their tax return) to identify tax haven transactions for review. Taxpayers use Schedule 25A to disclose details of specific overseas transactions and interests in foreign companies and trusts. We look for situations where any of the following applies:
- the value of transactions with tax havens as reported on AUSTRAC is disproportionate to the overall income reported or expenses claimed
- AUSTRAC information reveals transactions with tax havens but little or no foreign-source income is included in the tax return
- earnings from overseas employment does not appear to be exempt income
- AUSTRAC information reveals dealings with what appears to be related tax haven companies and the taxpayer does not indicate related party dealings in their tax return.
We also identify taxpayers who appear to have dropped out of the tax system but have tax haven dealings reported on AUSTRAC and request lodgment of outstanding returns. Lodged returns are reviewed post-lodgment.
Internet research
We use the internet to identify and monitor activities involving tax havens. We look for new promoters and investment products that may be marketed to Australia from outside our country and for associated Australian networks and contact points. Often the internet provides useful background information that helps us profile a taxpayer or arrangement.
The internet provides valuable sources of information. For example, we may examine more closely dealings with tax haven entities which, apart from details of registration in a tax haven, have no other record on the internet. This may give rise to concerns about concealed ownership of the tax haven entity.
We are also developing sophisticated web trawling software to scan the internet and gather intelligence on the promotion of schemes.
Using the internet to support investigations
Internet research as part of a tax haven risk review revealed that an Australian resident taxpayer and his close associates had a majority ownership through a tax haven structure in an international company owning a well-known product. There was no evidence of the taxpayer's apparent offshore ownership in tax returns lodged in Australia.
Sections within How we deal with tax haven arrangements
Last Modified: Tuesday, 18 October 2011