Targeting tax crime: A whole-of-government approach - September 2011
Targeting tax crime: A whole-of-government approach - September 2011
Issue five September 2011
The fifth issue of Targeting tax crime: a whole-of-government approach (PDF, 3.09MB) is now available.
Take a look at what Australian Government agencies are doing in the fight against tax and superannuation crime in the latest edition of Targeting Tax Crime: a whole of government approach, available now online.
In looking at the impact tax crime has on the community, this edition discusses how we are working with law enforcement agencies to help combat organised crime. We also look at new cooperative arrangements we have in place across government and internationally and, as in previous editions, there is an update on Project Wickenby.
This edition also features high profile guest commentators Dr Valerie Braithwaite and criminologist Professor Paul Wilson who discuss tax avoidance and the sentencing of white collar criminals.
Get Targeting Tax Crime: a whole of government approach delivered to your inbox by subscribing at firstname.lastname@example.org.
Previous issues - Targeting tax crime magazine.
Organised crime has a long history − crossing boundaries, classes, genders and subcultures. It is lucrative, insidious and notoriously difficult to uproot.
The Australian community feels the impact of organised crime in lost business and tax revenue, faltering economic confidence, added expenditure on services such as law enforcement, regulatory effort, health and education, not to mention the damage caused to communities, families and individuals.
The age of rising technological sophistication and globalisation has seen a change in the nature of organised crime. Organised crime now has better channels, and easier methods of laundering illegal income. Criminal networks tend to be highly interconnected, and usually with international links.
In response, there has been a push across government to find new and better ways of working collaboratively to deal with organised crime.
While not an obvious choice, organisations like the Australian Taxation Office (ATO) are playing an increasingly important role in working with law enforcement agencies. Within the boundaries of the law, we share valuable intelligence and data with law enforcement agencies that helps them track down criminals and hold them accountable.
Our work with the law enforcement agencies is part and parcel of our role as administrator of the tax system - it is about supporting the civic and legal responsibilities of citizenship.
The ATO is proud to be an active participant in whole-of-government approaches to deterring and cracking down on organised crime. The Commonwealth Organised Crime Strategic Framework provides us with a clear opportunity and responsibility to bring our resources and specialisations to bear on the problem. Legislative changes since the 1980s have allowed us to disclose information to and participate in joint taskforces with law enforcement agencies.
In this edition of Targeting Tax Crime we take a close look at organised crime and the impact it has, not just on the tax system, but on the Australian community. We will hear how we work with other government departments to tackle organised crime, as well as learn about the work going on in other agencies and internationally. We will also be joined by some guest commentators who will discuss their views on tax avoidance and the sentencing of white collar criminals.
Finally, in order to make it easier for you to access future editions of Targeting Tax Crime we are introducing a subscription service which I encourage you to use.
Commissioner of Taxation
A community approach to fighting international tax crime and evasion
Each year the Australian community misses out on billions of dollars in revenue at the expense of a small minority who shirk their responsibilities by hiding their wealth in tax havens.
The impact on the community is significant: less money to spend on essential services like health and education, and an uneven playing field that disadvantages those who do the right thing.
Fortunately, we are seeing a deepening level of cooperation among tax administrations around the world, as well as a growing recognition that we can't work in isolation in order to respond effectively to the increasingly global nature of tax crime and evasion.
Furthermore, we are seeing tax administrations known for strict banking and entity secrecy lifting the veil on their jurisdictions and committing to principles of transparency and exchange of information.
Australia has now signed 30 tax information exchange agreements and continues to actively pursue further agreements. In the last six months we have signed agreements with Liechtenstein, Costa Rica and Macau.
The continued pursuit of these agreements means that there are fewer places available for would-be tax avoiders to hide their assets and income.
With more pieces being added to the puzzle of international tax affairs, a more complete picture is beginning to emerge. This picture is one of a civilised society where the tax system is seen as a community asset, something we all need to work hard to protect.
The Hon Bill Shorten MP
Minister for Financial Services and Superannuation
The ATO has stepped up its role in the fight against organised crime by working closely with law enforcement agencies to identify and respond to crimes that impact the community.
'By working in close partnership with law enforcement agencies we are getting better at identifying and dealing with criminal acts,' Commissioner of Taxation Michael D'Ascenzo said.
The ATO's relationship with these agencies has evolved significantly in the last three decades. Since the 1980s, as a result of progressive legislative change, the ATO has played a pivotal role in managing this risk to society.
'Taxation is a logical weapon to use against organised crime. While those at the top of the criminal hierarchy can distance themselves from the crime, as long as they are committing these crimes for a profit, they cannot distance themselves from the money,' the Commissioner said.
There are tax impacts in relation to the activities of most organised crime syndicates. The ATO is well-placed to identify unexplained wealth generated from illegal profits.
'At an international level, we are increasingly seeing revenue collection agencies used as a vital source of intelligence and as providers of expertise in financial investigations in the fight against organised crime,' the Commissioner said.
The ATO's role in the fight against organised crime has been strengthened by the development of the Commonwealth Organised Crime Strategic Framework. Contributing to this strategic shift is the ATO's role on the Australian Crime Commission board and the Heads of Commonwealth Operational Law Enforcement Agencies.
'The message is clear: if you do the wrong thing, you will get caught and we will take a hard line. Those who abuse the system do so to the detriment of the Australian community', the Commissioner said.
The ATO contacted a state law enforcement agency and the Australian Crime Commission (ACC) after identifying suspicious GST refund patterns using our refund fraud analytical models. A joint agency operation was established which identified a financial adviser who was assisting organised crime groups launder money through complex business structures. Specific intelligence was gathered through the use of ATO, state police and ACC powers in relation to tax evasion through Phoenixing businesses, fictitious entities, and cash-in-hand payments. These were all strategies designed to avoid tax and superannuation obligations.
Based on the initial intelligence the ATO was able to:
- identify all of the financial adviser's clients and potential links to organised crime entities by working with law enforcement agencies
- analyse the client base in comparison to other agents' clients
- identify a number of entities not meeting their current lodgment obligations
- identify significant wealth accumulated through related entities
- compare the wealth of the private group to their tax performance to determine where there was unexplained wealth.
Through working in partnership with law enforcement agencies and designing a coordinated strategy, this sophisticated organised criminal network was dismantled, with 20 individuals being charged with multiple offences, including tax offences. Custodial sentences were significant, with up to nine-and-a-half years applied for the tax offences.
A number of civil sanctions were also applied as a result of subsequent audits, including tax assessments with additional heavy penalties and director penalties applied. Debt collection strategies were also put in place, including garnishee notices, Mareeva injunctions and departure prohibition orders to secure payment for the debts.
The ATO was also able to liaise with the Tax Practitioners Board to ensure that the financial adviser was de-registered and will be unable to practice again once released from prison.
Did you know?
Tax administrations have a long history of working with law enforcement agencies.
Back in the 1920s, Al Capone was one of America's most infamous gangsters, ruling an empire of crime in Chicago that dealt in everything from gambling, prostitution, bootlegging, bribery, narcotics trafficking, protection rackets, murder and more.
For a time he seemed untouchable.
In 1929, the Bureau of Prohibition set about bringing an end to Capone's reign but soon realised that the key to securing the gangster's conviction would ultimately be evidence of Capone's income tax violations gathered by Treasury agents.
On 24 October 1931 Capone was sentenced to 11 years in prison for income tax evasion. He served most of his sentence at Alcatraz and was too sick to carry on with his life of crime when he was released from prison in 1939. He died in 1947.
The successful conviction of Capone set a precedent for future law enforcement officials, with tax evasion becoming an increasingly common way to convict participants in organised crime where more substantial evidence is not available.
Find out more about the Commonwealth Organised Crime Strategic Framework (COCSF).
Find out more about the Heads of Commonwealth Operational Law Enforcement Agencies.
Read the Commissioner of Taxation, Michael D'Ascenzo's speech about the important role the ATO has to play in fighting organised crime.
Multi-agency taskforce Project Wickenby continues its fight against tax crime with more convictions and heavier penalties.
As at 31 July 2011, Project Wickenby has resulted in 20 convictions, and more than $1.1 billion in tax liabilities raised.
'The net is closing in on those who use tax secrecy jurisdictions to deliberately avoid paying their fair share of tax,' Commissioner of Taxation Michael D'Ascenzo said.
In 2010-11 two brothers were each sentenced to two years and seven months jail following investigations into the use of tax haven structures in Vanuatu. Former co-directors of a Sydney company, the pair used illegal 'round-robin' schemes to transfer money to an overseas account and then have it returned 'tax free' to their personal accounts, disguised as a loan. They will each serve 16 months in jail before being eligible for parole.
In the first money laundering conviction under Project Wickenby, a NSW man was sentenced to eight-and-a-half years jail after he was convicted of money laundering and tax fraud. This followed an investigation into his use of offshore tax structures. He will serve a minimum of four years and nine months jail before being eligible for parole.
Mr D'Ascenzo said the longer jail sentences sent a clear message: if you do the wrong thing you will get caught and will likely do time for the tax crimes you have committed.
Find out more about Project Wickenby.
Goods and services tax (GST) fraudsters are more likely than ever before to be caught out this year, as the ATO plans to increase its audits on GST refund claims by small businesses and investigate cases of serious evasion.
As a result of the funding provided in the 2010-11 Federal Budget, the ATO will be completing an additional 11,500 cases in 2011-12 investigating the systematic or deliberate under-reporting of GST and potentially fraudulent GST refund claims. Last financial year 28 people were prosecuted for more than $17 million worth of GST-related fraud offences.
- A West Australian company director received a three year jail sentence for understating cash business sales by over $5.6 million and underpaying GST obligations by $514,000.
- A NSW man operating a cash sales clothing retail business selling counterfeit surf wear was sentenced to six-and-a-half years jail for GST and income tax fraud. He failed to disclose income of more that $3.8 million over two years, and did not pay GST of over $700,000 due during the same period.
- A Brisbane insurance broker was sentenced to two years jail for $155,000 worth of fraudulent GST business activity statement claims.
- A NSW man was sentenced to five years jail for fraudulently claiming more than $680,000 in diesel fuel rebates and GST refunds he was not entitled to.
Scenario: Know your responsibilities as a director of a company
All persons mentioned in this scenario are fictional.
Gary had always been good at making a quick buck. Whether it was a hot tip on the horses or a quick sale of some shares, he loved the thrill of watching his bank balance grow.
When Gary turned 50, he decided it was time to embark on a career change to boost his nest egg. He had been researching the Queensland property market extensively over the past 18 months and tipped it to boom within five years.
Using the payout from his previous employer, he formed Gary McDougall Properties, purchased a large block adjacent to the Tweed River and went about calling in favours from some mates in the construction industry to build five free-standing townhouses on the cheap.
Gary had sold all five properties 18 months later and was living the laid-back Queensland lifestyle.
Realising he had found his calling, Gary replaced Gary McDougall Properties with the more aptly-named Sun, Surf, Sand Properties and found his next potential property: a run-down cottage that was zoned for re-development on the north coast.
Over the next two years, Sun, Surf, Sand Properties kicked into overdrive, building a complex of 16 apartments with many allocated to buyers off the plan.
Unknown to Gary, the ATO had flagged him as a taxpayer who may pose a risk of liquidating his company after reporting the property sales.
Through an audit, the ATO uncovered that Gary had failed to pay the GST on the five townhouses developed by Gary McDougall Properties which amounted to $1.21 million. It was no surprise that the ATO set up a meeting with Gary and Sun, Surf and Sand Properties' in-house accountant, Jen.
The case officer from the ATO advised Jen and Gary they could help themselves by voluntarily paying what Sun, Surf and San Properties owed to the ATO.
Over the next six months, Gary and Jen met several times with the ATO and negotiated a payment plan of monthly instalments. During this time, Jen continued to lodge activity statements for Sun, Surf and Sand Properties but did not pay any GST, which increased the debt.
At a further meeting with the ATO, Gary and Jen agreed to sell off some unencumbered apartments and paid the debt of $1.34 million in full. Because they chose to cooperate with the ATO, legal action was avoided.
The ATO is cracking down on the cash economy, signalling to the community the seriousness with which it responds to those who fail to play by the rules.
The majority of taxpayers do the right thing; however some people undermine the fairness of the tax system by deliberately engaging in the cash economy and deliberately not recording or reporting all of their cash income.
The cash economy impacts on the Australian community by reducing the amount of money available to fund community services such as health and education. Therefore, businesses that participate in the cash economy and don't record and report their cash income cheat the community and disadvantage honest taxpayers.
The ATO is sending a strong message that those who do the wrong thing could end up facing prosecution. Consequences can include criminal convictions, hefty fines and penalties, not to mention the social stigma, which can be hard to shake.
What is the cash economy?
The cash economy is also referred to as the 'black', 'hidden' or 'underground' economy. The essential characteristic is that transactions go unrecorded and unreported.
Cash economy activities include businesses:
- paying unreported wages 'cash-in-hand'
- skimming some or all of the cash takings
- running a part of their normal business activities 'off-the-books'
- not reporting the value of goods and services provided in exchange for other goods and services
- operating underground - that is, avoiding their obligations by not registering or lodging returns.
Case 1 - The builder
A Sydney builder was audited after the ATO received a report from a contractor who indicated that payments were made to the builder for providing services on a project, with payment for the contract totalling nearly $180,000.
Upon investigation, the builder's business activity statements (BAS) didn't show this income, and when questioned, the builder denied any payments were received.
Evidence found in bank statements and records from the owners of the building project showed the builder failed to report $177,500 in income, which led to a tax shortfall of just under $24,000.
He was prosecuted on six offences including recklessly making a statement to a taxation officer that was false and misleading. The builder was fined $18,000 and ordered to pay additional penalties of $17,300. He now has a criminal conviction.
Case 2 - The hairdresser
A hairdresser was recently prosecuted on 10 offences relating to his involvement in the cash economy.
He had previously been audited and was advised to improve his non-compliant record keeping. The taxpayer ignored the advice, continued to receive payment for services in cash and irregularities in his reporting were identified.
Third-party data accessed as part of the ATO's data matching program indicated he had purchased an $80,000 car. A private living expenses analysis found he was spending significantly more than his reported income. When reporting on his BAS, he had under-estimated his income by up to half - which totalled $150,418 over two-and-a-half-years.
He was fined and now has a criminal conviction.
Combating the cash economy
Information about the cash economy and the ATO's expanding ability to deter, detect and deal with those who deliberately evade tax is available at www.ato.gov.au/casheconomy.
The release of the ATO's annual compliance program is a timely reminder of the compliance issues attracting our attention and what is being done to address them.
'Businesses participating in the cash economy to evade tax, phoenix arrangements, incorrect superannuation guarantee contributions, promoters of illegal early-release super schemes and some high wealth individual groups are just some of the focus areas for this year,' ATO Second Commissioner, Bruce Quigley said.
The compliance program is part of the ATO's holistic approach to encouraging, supporting, protecting and championing the interest of honest taxpayers and advisers, and of continually improving processes and capabilities for doing that.
'The majority of us appreciate that taxes pay for public goods and services such as education, health, law and order, defence, and welfare which underpin the type of society we live in,' Mr Quigley said.
'Those who deliberately do the wrong thing face serious consequences for their actions, including penalties and possible criminal prosecution.'
The ATO has a range of measures in place to ensure we detect and deal with those who evade their obligations; this includes working across government agencies and the use of overseas networks.
Project Wickenby and organised crime are a focal point of this year's program, with the ATO looking to strengthen its multi-agency taskforces that target the tax implications of organised crime.
The ATO's focus in this area is across all markets and entities abusing the tax system or having significant amounts of unexplained wealth.
'We are seeing an increase in sophistication, use of new technologies, and organised methods to manipulate the system. We are responding to this by improving our capability to detect suspect behaviour and issuing tougher penalties for those who rort the system to the detriment of the Australian community,' Mr Quigley said.
'Last year we cross-referenced more than 520 million transactions received from third parties with information people included in their income tax returns.
'We all have a role to play in protecting the tax system for the benefit of the community. If you believe someone is doing the wrong thing or you would like to talk about your own situation, I encourage you to contact us.'
Focus areas for this year
The use of increasingly sophisticated data matching technologies to detect non-compliant behaviour.
Focus on those who fail to report some or all cash transactions to ensure a level playing field. Examine businesses operating outside our small business benchmarks.
Reduce phoenix arrangements through a coordinated program of reviews and audits of tax affairs.
- Protect employees' rights by ensuring employers are paying the correct amount of super guarantee.
- Implement strategies to deal with concerns we have with trustees of self-managed super funds and act against the illegal access or release of super.
Extend our focus on lodgment compliance within private groups, including wealthy Australians.
- Examine large business corporate governance processes for managing income and indirect tax risks.
- Engage our very largest taxpayers in cooperative compliance approaches.
- Review related party arrangements to ensure profits are not shifted out of Australia.
- Review multinational borrowing arrangements to ensure Australian companies are not given inappropriate levels of debt, interest or guarantee rates.
Project Wickenby and organised crime
- Continue to deal with the abusive use of tax secrecy havens including Project Wickenby.
- Strengthen our involvement in multi-agency taskforces that target the tax implications of organised crime.
Attention to deductions made by people employed as earthmovers, flight attendants, carpenters and joiners (including apprentices and trainees), and real estate employees.
Minister for Home Affairs and Justice Brendan O'Connor launched the Australian Crime Commission's (ACC) report, Organised Crime in Australia 2011, in April this year.
The theme of the launch was the cost of organised crime to Australia, which the ACC conservatively estimates to be between $10 to $15 billion each year.
John Lawler, CEO of the ACC, said it is important for Australians to understand the threat posed by organised crime.
'This is essential reading for Australian businesses and communities, so they can make informed decisions about the risk of organised crime and help make life difficult for organised criminals,' Mr Lawler said.
The report is the most comprehensive profile of organised crime in Australia that has been published to date. It provides an overview of crime markets and risk methodologies, including frauds in the investment, superannuation and taxation industries.
Financial profit is the main driver for organised crime groups and the report identifies money laundering as an inevitable process through which criminals attempt to hide the proceeds of crime, thereby avoiding tax obligations. Money laundering stretches across many industries, including banking, international funds transfers and foreign exchange services, gambling, shares and stocks.
The ACC has also released its crime profile series of fact sheets. This series complements Organised Crime in Australia 2011 and provides a snapshot of information on a variety of topics including financial crimes, drugs, fraud and money laundering, as well as a range of other organised crime themes.
Federation Square was chosen as the venue for the launch to visually demonstrate the huge amount of money Australians are losing to organised criminals each year. Minister O'Connor explained that if the North Atrium of Federation Square was filled with $100 notes, it would amount to $15 billion - the estimated cost of organised crime to Australia.
The scoop on ACC CEO Mr John Lawler APM
John Lawler APM has been serving as Chief Executive Officer of the ACC since 2009. As a career law enforcement officer, Mr Lawler has extensive experience in a range of law enforcement disciplines in Australia and overseas, having served for 29 years with the Australian Federal Police (AFP). Mr Lawler has performed executive roles at the local, national and international level including Community Policing, Investigations, Protection, Intelligence, International Operations and Executive Services.
Mr Lawler holds a graduate certificate in Business Banking from Monash University, is a graduate of the Australian Graduate School of Management Managers Program at the University of New South Wales and is a member of the Australian Institute of Company Directors.
In 2003, Mr Lawler received the Australian Police Medal, Australia's highest law enforcement award, and was awarded an Australia Day Medallion in 1997.
Since the outbreak of mass-marketed schemes and employee benefit arrangements in the 1990s, the ATO has focused on deterring, detecting and dealing with tax avoidance schemes.
Building awareness of how to recognise and reject tax avoidance schemes is a key ATO preventative strategy designed to shrink both the supply of and demand for tax avoidance schemes. In line with this strategy, the ATO has recently released two new publications:
1. Understanding tax effective investments for investors (to reduce demand), and
2. Good governance and promoter penalty laws for promoters (to reduce supply).
'These guides are part of our strategy to encourage practitioners and taxpayers to recognise, reject and bring to the ATO's attention avoidance schemes or behaviours which are not within the spirit of the law,' Commissioner of Taxation Michael D'Ascenzo said. 'The guide was prepared in consultation with tax intermediaries.'
The Good governance guide is designed to help practitioner firms and financial institutions manage their promoter penalty risks. Following the release of the guide, the ATO wrote to prominent entities in the law, accounting and financial product industries and has commenced a program of engagement visits with these entities.
Promoter penalty laws were introduced in 2006 to deter the promotion of tax avoidance schemes and the implementation of arrangements in ways that were materially different to the description in ATO product rulings.
'The promoter penalty laws work on the supply side of tax avoidance schemes. They are there to protect you and the community from those less scrupulous,' the Commissioner said.
Since the commencement of the laws, the ATO has conducted more than 550 reviews of the conduct of entities potentially involved in arrangements that may have contravened these laws.
'The message is clear: for those who want to do the right thing, we are here to help. For those who work outside the system, we have laws to deal with them,' the Commissioner said.
In most cases, entities contacted about specific conduct regarding doubtful arrangements correct their conduct without the need to impose sanctions under these laws. Many have taken material off websites, changed seminar materials, altered scripting content or even ceased marketing particular products.
Some entities involved in more complex or higher-value arrangements have offered enforceable voluntary undertakings for the purposes of these laws, which the Commissioner has accepted.
In other cases, where entities have not self-corrected in the first instance, the ATO has warned them of the concerns, highlighting the risks they run in continuing with their conduct. This has resulted in further self correction.
For the most serious cases involving the highest levels of risk and lowest levels of self-correction, the ATO can initiate proceedings in the Federal Court to seek a civil penalty or an injunction as appropriate. Penalties can be as high as $2.75 million per entity, per scheme.
For more information view the Good governance and promoter penalty laws guide.
This year's advertising campaign shifted focus to send a clear message to the community: 'it's not worth the risk'.
Last year the campaign focused on encouraging those involved in illegal activity involving tax havens to voluntarily disclose their income.
'People have had their chance to come clean and potentially reduce the penalties they might have to face for their involvement in offshore havens. Now, we will be pursuing and bringing to account those who rort the system to their advantage,' Commissioner of Taxation Michael D'Ascenzo said.
Not only does this advertising campaign send a warning to people who are involved or considering becoming involved in economic crime, it also helps reassure the Australian community that Project Wickenby will bring to account those who create a greater burden on honest taxpayers by avoiding their tax obligations.
You may have seen the advertisements in the Australian Financial Review, The Sydney Morning Herald, and The Age in May and in The Australian in June. Advertisements also appeared in the June editions of several financial magazines. Search engine marketing was also used to help steer potential evaders, looking for information on tax havens online, to the information on the ATO website.
Overall, there were 7,699 responses to the offshore voluntary disclosure initiative (OVDI) disclosing in $836.02 million of omitted income. Although the OVDI has ended, taxpayers who make a voluntary disclosure will still generally face reduced penalties, provided they come forward before a review or audit is commenced.
The ATO is always willing to help taxpayers do the right thing. If you are concerned you may be involved in a suspect scheme and would like to discuss your situation with a tax officer, you can phone us on 1800 306 377. You can remain anonymous if you prefer.
In the last edition of Targeting Tax Crime, Assistant Treasurer the Honourable Bill Shorten MP, reflected on the natural disasters which devastated so much of Australia earlier this year, and drew an important analogy between the spirit shown by affected communities and the importance of everyone playing their part and contributing their fair share of revenue.
In this edition, we look at the work the ATO is doing to provide support and assistance and ensure a level playing field for all those involved in the reconstruction effort.
'In the immediate aftermath of the natural disasters earlier this year, the focus was on providing relief to affected individuals and businesses,' Cheryl-Lea Field, Deputy Commissioner, Tax Practitioner and Lodgment Strategy explained.
Now that the immediate threat of disaster has passed, the focus shifts to the reconstruction effort - rebuilding homes, business and community infrastructure in towns and cities around the country.
'There will be a significant reconstruction effort as communities work to rebuild what they have lost,' Ms Field said.
'The experience from the aftermath of Cyclone Larry showed that in an environment such as this, the cash economy can boom, so being on the ground early is essential in preventing long-term non-compliance.
'The urgency of work to be completed, and demand for qualified service providers outstripping supply, may create longer-term issues with regard to tax and superannuation compliance.'
The business reconstruction and compliance initiative was established by the ATO to provide support and encourage voluntary compliance among those involved in post-disaster repair and reconstruction. The focus is on ensuring tax obligations are reported correctly and employer obligations are met, especially where grants or insurance monies have been received.
The ATO is working to ensure a level playing field for all those involved in the reconstruction effort. Businesses that don't pay their fair share of tax or fail to meet their obligations as an employer have an unfair competitive advantage over those that do the right thing.
'This means helping builders and contractors to understand their tax and superannuation obligations by providing real-time support and advice. It also means being firm with people who deliberately choose not to comply,' Ms Field said.
'We're also watchful for those who might take advantage of people affected by natural disasters by inflating prices and under-reporting income or accepting payment for services not undertaken.'
The ATO is working closely with Commonwealth, state and local government authorities to share information and ensure a coordinated response. There is also considerable interaction with Commonwealth and state disaster authorities as well as insurance providers.
If you have information about fraudulent or possible criminal activity, phone us on 1800 060 062 (between 8.00am and 6.00pm weekdays), or make an online report at www.ato.gov.au/reportevasion. Your information could help make the system fairer for everybody.
The Office of the Commonwealth Director of Public Prosecutions (CDPP) is an independent prosecution service established by the Parliament of Australia to prosecute alleged offences against Commonwealth law, and to deprive offenders of the proceeds and benefits of criminal activity.
This edition we caught up with Commonwealth Director of Public Prosecutions, Chris Craigie S.C. to explore the CDPP's involvement in fighting tax crime.
The CDPP's vision is 'A fair, safe and just society where the laws of the Commonwealth are respected and maintained and there is public confidence in the justice system'. How do you think tax crime impacts on a fair, safe and just society?
While some Australians may not particularly like paying tax, they are generally cooperative, and there is widespread recognition that it is by paying tax that a modern, developed society like ours is able to maintain its high standards of living.
In a number of Project Wickenby prosecutions, the courts have commented that tax fraud erodes what should be an equitable sharing of communal responsibility. For example, during a recent sentencing the Victorian Court of Appeal said '… detecting offending of this kind is not easy and serious tax fraud is offending which affects the whole community. As Ormiston JA recognised in R v Liddell, while the Australian Taxation Office is the ostensible victim, serious tax fraud will inevitably have a flow on effect to the incidence of tax to the honest taxpayer.'
These comments illustrate that tax crime impacts adversely on a fair, safe and just society by enabling a minority to avoid paying their fair share and thereby increasing the load on the majority of the community who do the right thing.
What do you see as the biggest priorities for the CDPP in managing tax crime?
In recent years we have committed to providing specialised support to Project Wickenby by undertaking its prosecution and Proceeds of Crime functions, in particular to counter sophisticated and large-scale tax evasion related to overseas tax havens. The public can be increasingly confident that even the most sophisticated schemes will be detected, prosecuted and punished appropriately.
The prosecution of tax crimes has become complex and time consuming. Cases such as those prosecuted under Project Wickenby often involve evidence obtained from overseas jurisdictions. Because serious matters, including major tax fraud, must be tried before a jury, it is important that the CDPP present cases in simple terms.
Another priority is to bring cases before the courts as quickly as possible and do what we can to ensure they progress without delay.
How does the CDPP work with other agencies?
While the CDPP has traditionally worked with other Commonwealth agencies on an operational level, Project Wickenby has provided an opportunity to work across a number of agencies at a more strategic level.
I have little doubt that Project Wickenby has had a strong impact in deterring potential offenders. The progress should also give millions of honest taxpayers confidence that individuals with sufficient resources and access to skilled professional advice will no longer be able to steal from the community with impunity.
The Commonwealth Organised Crime Response Plan was released late last year. How is your department contributing to the implementation of this plan?
The CDPP recognises that tax offending in some instances overlaps with other criminal activities such as money laundering.
We contribute to the response plan by prosecuting those engaged in organised crime for serious offences that encompass money laundering and tax fraud, as well as by taking action to deprive offenders of the proceeds and benefits of criminal activity.
The recently introduced unexplained wealth regime contained in the Proceeds of Crime Act 2002 targets organised crime. The provisions enable a court to order a person to pay the difference between the value of their total wealth and the sum of all the property the court is satisfied is not derived from criminal activity. This is an important tool for the CDPP to better combat the activities of those engaged in organised crime.
A new multi-agency Criminal Assets Confiscation Taskforce has been established to provide a more coordinated and integrated approach to identifying and removing the profits derived from organised criminal activity.
The taskforce is hitting criminals where it hurts, seizing wealth and assets acquired as a result of illegal activities in an effort to reduce the harmful effects of organised crime on the Australian community.
'By taking the profit out of crime, we remove the benefit criminals obtain from exploiting the community. A key weapon for law enforcement is the ability to seize these profits from criminals,' Australian Federal Police (AFP) Commissioner Tony Negus said.
The Criminal Asset Confiscation Taskforce, led by the AFP, was formally launched by Attorney-General Robert McClelland and Minister for Home Affairs Brendan O'Connor in Brisbane earlier this year.
The powers under the Proceeds of Crime Act 2002 and The Crimes Legislation Amendment Bill (No. 2) 2011 enable the AFP, on behalf of the taskforce, to pursue and seize the wealth and assets.
The taskforce combines the intelligence, operations, legal, policy and other specialist resources of the Australian Federal Police, the Australian Crime Commission, the Australian Taxation Office and the Commonwealth Director of Public Prosecutions. It also works in partnership with state, territory and international law enforcement agencies to identify and investigate suspected proceeds of crime.
'The taskforce - along with the government's broader package of organised crime measures - will help to protect families and make Australia safer,' Mr McClelland said.
'It will also act as a deterrent to criminals, knowing that authorities will be in a stronger position to track the assets they've acquired through crime.'
Profits from seized criminal assets are being used for community-based crime prevention and law enforcement initiatives as part of the Proceeds of Crime Act scheme.
More than 150 representatives from 46 countries met at the OECD international conference held in Oslo earlier this year to discuss how they can work better together in fighting tax crime.
The purpose of the 'Tax and Crime Conference: A whole of government approach in fighting financial crime' was to find more effective ways to counter financial crimes, tax evasion and other illicit flows through better inter-agency and international cooperation.
ATO Deputy Commissioner for Serious Non-compliance Michael Cranston participated in a panel discussion about the challenges and opportunities of using a whole-of-government approach to fighting crime.
During the panel discussion, Michael discussed the work being done in Australia with Project Wickenby and its effectiveness in addressing abusive tax behaviour.
'Australia is seen as a world leader in cross-agency work and our Wickenby model is regarded as a guide for other countries to follow,' Mr Cranston said.
The conference clearly showed that issues of financial crime and illicit flows of funds are a concern to all countries, but particularly to developing countries.
The impact of financial crimes was a key topic at the conference. Delegates talked about how illicit funds flowing from financial crimes can strip resources from developing countries that could otherwise be used to finance their long-term development.
State Secretary of the Norwegian Ministry of Finance Roger Schjerva said the fight against economic crime needs to be fought both domestically and internationally.
'Fighting economic crime requires greater transparency and improved efforts to make the most of the capacity of different government agencies to work together, aiming to prevent, detect and prosecute these crimes,' Mr Schjerva said.
The conference group recognised that inter-agency cooperation can enhance financial integrity and good governance, and therefore improve the effectiveness of countries' abilities to fight financial crimes.
There was a strong interest in establishing a global dialogue for sharing operational experiences about how to better fight financial crimes.
An OECD taskforce will map out different models of inter-agency cooperation with the view to developing best practice standards.
Visit OECD for more information.
The 2011 Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Conference will be held 7-8 November in Sydney.
The conference will be co-hosted by the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Attorney-General's Department, Australian Federal Police, Australian Crime Commission and the Australian Bankers' Association.
The theme of this year's conference is 'Financial intelligence: Global and domestic partnerships and practices, successes and challenges'.
During the two-day program, delegates will participate in forums, hear expert perspectives and consider the lessons learnt through a number of panel discussions.
There will be presentations on the latest money laundering and terrorism financing typologies and case studies and regional perspectives from the United States, the United Kingdom and Australasia on law enforcement and the impact of money laundering.
The conference will provide delegates with the opportunity to discuss current and emerging threats, the benefits of cooperation between industry and government, and the importance of quality financial transaction reporting by businesses.
- an opening address by The Hon. Brendan O'Connor, the Minister for Home Affairs and Justice
- John Schmidt, CEO, AUSTRAC
- Roger Wilkins, Secretary, Attorney-General's Department
- John Lawler, CEO, Australian Crime Commission
- James H. Freis Jr, Director, USA Financial Crimes Enforcement Network
- John Arvanitis, Chief of Financial Operations, USA Drug Enforcement Administration
- John Ribeiro, Chief Superintendant, Hong Kong Police Narcotics Bureau.
Registrations are open
Secure your place at this preeminent conference to join influential decision makers and representatives from the government sector, banking and finance, gambling and licensed clubs, law enforcement and education.
For more information about the 2011 AML/CTF conference, online registration and sponsorship opportunities, visit www.amlconference.com.au.
Honorary Professor at Bond University Queensland, Professor Paul Wilson is a prolific media commentator on crime and social issues. Here he shares his views on tax crime and the sentencing of such offenders, posing the question: the detection of tax crime has improved but what about sentencing?
Recently Justice Ray Finkelstein, one of Australia's most respected and experienced judges in the area of corporate crime, argued that the courts repeatedly treat white-collar offences as lesser than crimes against property and persons. 'I don't regard offences against the community as less significant than offences against individuals,' he said.
Many criminologists, including myself, agree with him. Indeed, many of us regard a great deal of white-collar crime as enormously destructive to both a culture of compliance and honesty, as well as public trust in banking, business and other key economic and social institutions. Though most recognise the damage white-collar crime inflicts, criminologists point to the disparity in sentencing between those who commit crime in the suites as against crime on the streets.
Tax evasion and illegal tax avoidance activities are a form of white-collar crime generally associated with the rich and powerful and involve large companies and big money. Yet the offence can also apply to ordinary people, to almost anyone who derives an income and has an obligation to pay tax. In this sense it is a unique form of white-collar crime in that potential offenders do not possess any distinctive personality or social characteristics. This renders 'psychological profiling' as a technique occasionally used in the detection of serial murderers and rapists almost worthless in uncovering tax criminals.
A good analogy here is with security personnel tasked with detecting terrorists. These professionals have increasingly learnt that studying the patterns of behaviour of potential terrorists - testing security, dry runs, acquiring supplies and so on - is a far more effective technique than trying to derive psychological profiles of potential terrorists.
In a similar vein tax authorities, at least in Australia, assess spending and consumption habits and the monetary activity of taxpayers relative to normative indices collected from similar demographic and economic groups. These methods, combined with sophisticated data-matching programs and an ability to forensically examine financial records, have led to a great deal of success in uncovering both tax evasion and avoidance. Project Wickenby and the targeting of tax havens and money laundering operations are reported to have raised more than $1 billion dollars over the last five years.
Yet while the techniques for identifying tax evaders and avoiders might have improved dramatically, disquiet remains about the sentencing of offenders. Justice Finkelstein's view has a great deal of cogency especially when the sentencing of such offenders is compared to social security fraudsters. Offenders convicted of such frauds have often been required to serve terms of imprisonment, even where the amounts involved have been small. Though there are exceptions, the same generally cannot be said of those convicted of tax fraud, even where the amounts involved have been relatively large.
No criminologist I am aware of is calling for mandatory sentencing for tax criminals, precisely because the people who commit such crimes vary enormously in terms of their background, circumstances, motivation and the amounts of tax they evade or avoid. But there is a cogent argument for increasing the penalties in major cases if only to clearly signal to potential offenders that tax crime is considered a serious social harm.
Between 2001 and 2005, Valerie Braithwaite was Director of the Centre for Tax System Integrity at the Australian National University. She led a research team that undertook five national surveys into taxpayers' attitudes to the tax system, finding that defiance in response to taxation takes two main forms. She summarises the highlights of this work below.
Defiance in response to taxation takes two forms: resistance and dismissiveness. Resistance is the most familiar form, with around half of Australians likely to be resistant to paying tax at any one time. It often takes the form of grievance, with taxpayers complaining about how the ATO 'brands them and hounds them, no matter how hard they try to do the right thing'. Resistance does not mean people won't pay their tax and, more importantly, resistance does not mean people don't believe in a tax system.
Generally, resistant defiance can be managed through explanation, fair treatment, transparency, helpfulness, trust, respect for the community and patience - all the things outlined in the Taxpayers' Charter.
A second form of defiance is dismissiveness. Repeated cycles of deliberate tax avoidance are examples of harmful practices that are likely to be initiated by those who are dismissively defiant. This is a far more serious form because there is no relationship with authority that can be nurtured or repaired.
Dismissive defiance represents a challenge to authority, a desire to 'beat the system'. Dismissive defiance of taxation is found in less than 20% of the population. While relatively uncommon, it is more worrying for tax authorities because of its links with tax evasion and unlawful activity. It is fuelled by cynicism and disrespect for the tax system - and in most cases for government as well. Those who are dismissively defiant either cut themselves off or consider themselves a match for the tax authority.
Trust plays different roles in dealing with resistant and dismissive defiance. For resistance, the best protection for a tax authority is building trust, which can be partly done through practicing the principles of the Taxpayers' Charter. The ATO scores as well as our law courts on trust: about half of the Australian population report that they have a fair bit or a lot of trust in the ATO.
Dismissive defiance will thrive when trust is absent, but building trust is not the key to managing dismissive defiance. The answer to dismissive defiance is getting the law right, morally and technically, and enforcing it effectively. The role of tax authorities here is to investigate, prosecute, track, and remove opportunities. At the same time, principles of fairness also need to be heeded. While injustice and grievance may not be drivers for those who initiate avoidance schemes, they are likely drivers of the people who come in at the tail-end as participants. Such schemes cascade down from elites to ordinary taxpayers, albeit in less sophisticated and in more transparently illegal forms. The grievance that attracted ordinary taxpayers in the first place mushrooms when they are the first to be caught and prosecuted.
Tax authorities can't escape the complexity and sophistication of how taxpayers think and justify their actions. Each of us has many different faces when it comes to tax. So how should tax authorities take our multiple tax selves into account in designing their approach to preventing evasion and avoidance?
The best way is through scenario planning around three personas, bearing in mind that each of us has all three. First is the honest taxpayer. Instead of being cynical about the existence of the honest taxpayer, tax authorities would do well to value, strengthen and give dignity to this way of being. Second is the just and fair persona. This persona is sensitive to any breaches of fair play and taxpayer rights. Third is the competitive, achievement-focused persona, ready to fight with the tax office on every obstacle. The best way to face the inevitable contest with the competitive persona is to pre-empt and remove as many obstacles as possible through consultation. The tax authority may not always win the contest, but in the eyes of the public, the authority has the courage of its convictions, standing up for what it believes is right for the tax system and the community.
Based on Valerie's book, Defiance in Taxation and Governance:
Resisting and Dismissing Authority in a Democracy (2009). Cheltenham, UK and Northampton, USA: Edward Elgar (365 pages).
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.
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.
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.
Recent ATO speeches on tax and superannuation compliance topics
The 2011 Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) conference will be held 7-8 November in Sydney.
Read between the lines
Commonwealth Organised Crime Response Plan overview.
Websites to watch
MoneySmart website helps ordinary Australians take steps to improve their personal finances. The site provides independent information to help people be better informed in making decisions and take action on matters that will make a difference to their life.
Since July 2008, ASIC has been the government agency with overall responsibility for financial literacy. The MoneySmart website is one of the key initiatives in the National Financial Literacy Strategy.
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 cyber safety program, and contains a wealth of useful information about protecting your identity and personal information online.
Stay smart online provides information for Australian internet users on the simple steps they can take to protect their personal and financial information online.
Protect Your Financial Identity was developed by the Australian Bankers' Association, the Australian Federal Police 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.
We are listening
Always on the look out for ways to improve, we recently conducted research to find out what you like about our magazine and what we could do better. Thank you to everyone that participated. We took all of your feedback on board and look forward to giving you more of what you want in this, and future, issues of the magazine.
What you told us and how we responded:
More case studies and real life examples
In this edition we have packed in more case studies and real life examples - including a case study about a financial adviser who was assisting his clients launder money.
A shorter, more succinct magazine
In this edition we have been careful to only include the most relevant, useful stories, and have the kept the file size of the PDF as low as possible without downgrading the look and feel of the magazine.
Easy to access from ato.gov
The magazine will be accessible from the homepage of ato.gov for September and then accessible from the right-hand menu under 'Corporate publications'. You can also subscribe to have the magazine delivered directly to your inbox.
Feedback is always welcome. Email us at email@example.com with any comments or suggestions.
Before we sign off edition #5, we want to remind you one last time to subscribe to Targeting Tax Crime by simply clicking on this subscribe link. That way you will never miss out on receiving the latest news on what is happening in our whole-of-government approach to fighting tax crime.
Last Modified: Tuesday, 20 March 2012