One of Project Wickenby's primary goals is to reduce the risk of people engaging in the abusive use of offshore havens. Enhancements to Australia's regulatory environment take the form of improvements to administrative practice, policy and legislation.
To decide what enhancements are necessary, we need to understand why certain people choose to take the risk and engage in the abusive use of offshore havens. The formula below illustrates what potential promoters and participants consider when deciding whether or not to become involved in these arrangements.
Risk = Benefit - (Detection x Consequences)
This formula tells us that to reduce the risk of abusive use of offshore havens, we need to do three things:
- decrease the benefits associated with havens
- increase the likelihood of detection, and
- increase the consequences of offending.
The aim is that when the likelihood of detection and the consequences of offending are high enough they outweigh the benefits associated with havens, and people will no longer see the value in engaging in this risky behaviour.
Reducing the benefits associated with the abusive use of offshore havens
Those who abuse offshore tax havens rely on the havens' lack of transparency in their internal operation, and lack of effective exchange of tax information with other jurisdictions, such as Australia. There are two ways Australia can have an impact on reducing these benefits for those that are willing to take this chance:
- Enact unilateral measures in relation to that jurisdiction (for example, signing Tax information exchange agreements with jurisdictions to reduce the secrecy benefits, or enacting 'defensive measures' to protect Australia's system against jurisdictions that will not effectively exchange information with us).
- Develop worldwide standards of transparency and exchange of information (for example, through Australia's work with the Organisation for Economic Co-operation and Development's (OECD) Global Forum on Transparency and Exchange of Information for Tax Purposes, and our work with the international Financial Action Task Force (FATF).
Increasing the likelihood of detecting those who abuse offshore havens
Australia has become increasingly sophisticated in detecting those who attempt to use secrecy havens to hide their offshore affairs from regulators. Along with enhanced information sharing both internationally and domestically, we are constantly looking to improve controls in our financial system and ensure that those who access the benefits associated with living in Australia also comply with their legal obligations.
For instance, Project Wickenby identified a significant number of business migrants who had moved their assets to offshore havens prior to migrating to Australia, and subsequently failed to declare income earned from these offshore assets to us. Improved cooperation with the Department of Immigration and Citizenship enabled us to take appropriate compliance action, and recent reforms to the Business Innovation and Investment Program in July 2012 now ensures that business migrants must comply with the tax obligations to be eligible for a permanent visa.
Increasing the consequences of offending
Project Wickenby's results have highlighted the significant consequences that can apply to those who use offshore havens to commit offences including money laundering, structuring, insider trading and tax evasion.
Consequences have included criminal convictions, imprisonment for terms of up to eight and a half years, freezing assets, increased tax assessments involving significant penalties, departure prohibition orders preventing departure from Australia, and even the extradition of an alleged promoter to face criminal charges in Australia.
We continue to look at new and innovative ways to deter people from promoting and participating in these types of arrangements, including enhancing our ability to recover debts internationally, and the possibility of increasing penalties where illegal arrangements involve offshore havens.