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John Passant

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November 2010



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My interview Razor Sharp 18 February
Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. (0)

My interview Razor Sharp 11 February 2014
Me interviewed by Sharon Firebrace on Razor Sharp this morning. The Royal Commission, car industry and age of entitlement get a lot of the coverage. (0)

Razor Sharp 4 February 2014
Me on 4 February 2014 on Razor Sharp with Sharon Firebrace. (0)

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Paul Hogan’s tax case to continue?

Paul Hogan is very wealthy. He has the wherewithal to and has challenged every step of the 5 year Australian Crime Commission Operation Wickenby criminal investigation into his tax activities.

Last week the ACC decided enough was enough and stopped investigating him and his mate, John Cornell. Their adviser currently remains under investigation and has been battling access to documents in the courts.

Many of the challenges relate to an arcane rule called Legal Professional Privilege. In Australia, according to the Australian Tax Office, legal professional privilege:

attaches to confidential communications between legal adviser and client (or in some circumstances between one of those and a third party) if those communications were made for the dominant purpose of:

  • enabling the client to obtain, or the lawyer to give, legal advice, or
  • litigation that is actually taking place or reasonably anticipated at the time the communication was made.

The High Court has explained the rationale for the rule in these terms:

it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline. This it does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure of the relevant circumstances to the solicitor. The existence of the privilege reflects, to the extent to which it is accorded, the paramountcy of this public interest over a more general public interest, that which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available. As a head of privilege legal professional privilege is so firmly entrenched in the law that it is not to be exorcised by judicial decision.

Me? I favour full and frank disclosure in tax matters. Transparency facilitates justice.

So what’s the go with these international arrangements? They are usually conducted through no or low tax countries.  Tax havens are supposedly sunny places for shady people. As an aside the main tax havens are the US and the UK. 

Sunny tax havens and not so sunny ones like Switzerland have bank secrecy rules which mean it is a crime for banking information in those jurisdictions to be released. Bank employees in those countries could be jailed if they did provide the information to foreign jurisdictions, especially their tax authorities.

The Global Financial Crisis saw the G20 take up the OECD’s campaign against tax havens. The consequence is that tax havens have agreed to enter into Tax Information Exchange Agreements with OECD and other countries to provide information where it is foreseeably relevant to an investigation.

So while developed countries expect and are now requiring tax havens to provide account information, countries like Australia exempt legal communications in our own countries from the reach of the tax man.  Maybe it’s time we abolished legal professional privilege – a sinecure for the legal profession and our own exchange exempt information tax havens.

Paul Hogan made his money out of films, in particular Crocodile Dundee and its progeny, including a phantom pregnancy called Crocodile Dundee 4.

The allegations against Hogan were that he had interests in companies, trusts and the like in tax havens and that he allegedly did not disclose relevant income to the ATO arising from those holdings.  

 In a statement announcing the end of the Hogan and Cornell criminal investigations the ACC said: 

The delay in resolving this long-running investigation hinges on the international complexity of the structures put in place by those who are the subject of the investigation and a clear strategy by those being investigated to legally challenge the ACC’s attempt to establish the facts in the case.

You and I of course don’t have the cash to undertake complex international arrangements or to challenge attempts to establish the facts. And so the ACC investigation has collapsed, leaving their investigative reputation in tatters and allowing the rich and powerful to begin circling the Wickenby investigations.

There are two Wickenbys. One is Operation Wickenby, which is the criminal investigation. The other is Project Wickenby which is the tax investigation. As the ACC website says:

Operation Wickenby is the ACC led intelligence and investigative component of the larger Australian Tax Office led Project Wickenby.

Project Wickenby is cooperative partnership between the Australian Taxation Office (ATO), Australian Federal Police (AFP), Australian Crime Commission (ACC), Australian Securities and Investments Commission (ASIC), Commonwealth Director of Public Prosecutions (CDPP) with support from the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Government Solicitor (AGS).

Operation Wickenby develops intelligence on and investigates and prosecutes promoters and participants who facilitate and profit from abusive tax haven arrangements. Operation Wickenby provides for the application of ACC investigative and intelligence resources in close collaborations with the Australian Taxation Office, Australian Federal Police, Australian Securities and Investments Commission and the Commonwealth Director of Public Prosecutions.

While dropping the Hogan case is a setback for Operation Wickenby it doesn’t end Project Wickenby, or the ATO tax case against Hogan.

Earlier this year the Tax Office raised assessments against Hogan. The amounts involved, according to Chris Seage in the Daily Telegraph, could be in the order of $95 million, taking into account not only the tax owed but penalties and interest. 

The calculations go back to 1986 and the penalties imposed are 75% of tax in dispute. My understanding is that the ATO can only go back that far or impose those levels of penalty if they allege fraud or evasion.

 The ATO tax bill is a civil matter and so only requires proof on the balance of probabilities (ie something slightly more than 50/50).

The ACC case was a criminal matter and so the burden of proof required is beyond reasonable doubt – something more akin to 80 or 90 percent certainty.

It is likely that some at least of the information flows in Wickenby were from the ATO to the ACC. If that is the case, and taking into account the different burden of proof in criminal and civil cases, it is my guess the Tax Office assessments against Hogan will stand and the ATO will seek the possible $95 million from Hogan, and he will fight it all the way.

The ACC decision to drop the Hogan investigation has seen calls from various quarters for Wickenby to be abandoned or reined in. The Crime Commission cowboys have given powerful ammunition to those making these calls.

Yet Wickenby has begun to produce results. According to the ACC:

As at 31 October 2010, Project Wickenby results include:

  • completed of 1664 reviews and audits, raising liabilities of approximately $951.61 million
  • a total of 27 criminal investigations underway, with 60 people charged and 14 people convicted of serious offences
  • recouped $229.52 million in tax
  • achieved a compliance dividend of $301.70 million
  • collected $2.1 million in other moneys

In addition, analysis indicates the average net tax payable by taxpayers and their associates touched by Project Wickenby has increased by approximately 276 per cent and 153 per cent respectively, compared to the top 4% of taxpayers with average net tax payable increases of only 30% over the same period.

The difficulties in pursuing cases involving international transactions in tax secrecy jurisdictions, the ongoing challenges to every step of investigations and hiding behind legal professional privilege shouldn’t detract from the growing success of Project Wickenby in curbing tax avoidance and evasion. To hamstring or wind up the Project now would be a victory for tax cheats and avoiders.

The difficulties in gathering information and continuing prosecutions that the ACC identified justify more Wickenby powers, not less, and more Wickenby resources, not less, to combat international tax evasion and avoidance.



Comment from Chris Seage, tax consultant, Rambo Taxation Services
Time November 28, 2010 at 9:34 am

Looks like you and I agree to disagree on this one now John. Let’s look at the raw stats the ATO calls “results”. At 30 June 2010 the government had spent $305M on Wickenby but had only collected $193M cash. They are in the red by $112M.

While they have raised $855M in liabilities (assessments issued) they have only collected $193M cash. That means there is a whopping $662M difference. That is a huge discrepancy that the government nor the ATO explain. An intelligent analysis of the $855M figure would reveal that the majority of it is in dispute with the rich people taking litigation action against the ATO and much of it will never be collected. I look at the bottom figure and that is cash collected.

As for the dubiously titled “compliance dividend” let me say this: Look at the case of Wickenby suspect John Cornell. He sold the Beach Hotel in 2007 for $65M. There would have been tax implications for him with the sale like CGT. He would have also reinvested the money into income producing activities and in the end his tax bill would have been greater. There are so many reasons why Wickenby participants are paying more tax and being afraid is only one of them.

As for the other multi million dollare figure they refer to as results; Assets restained. Restrained is just that – not collected. That means they have frozen bank accounts and other assets and this is also subject to litigation BUT it is not collected!

The ACC have badly let the Wickenby brand down with their back-flip on Hogan and Cornell.

Comment from John
Time November 28, 2010 at 1:14 pm

Thanks Chris. I don’t disagree with that analysis about the discrepancy between tax raised and tax collected. I have criticised Wickenby in the past on this site for that gap, and for the very fishy ‘compliance dividend’. However there is progress and it is beginning to accumulate convictions and money.

I have likened it to a Geoffrey Boycott innings – slowly accumulating runs and we are now in the mid20s with the potential in the next day’s play of a century.

The ACC have undermined the wider Project Wickenby but I am not sure what they could have done differently.

Should they not have investigated Hogan and Cornell?

I remember one discussion I had about 12 to 18 months ago indicating the ATO were trying to distance themselves from the ACC because they could see they were cowboys.
They were even then trying to stress the difference between Project Wickenby and Operation Wickenby to protect the project from any possible adverse consequences if Operation Wickenby had problems.

The problem I keep coming back to is that the wealthy are screaming blue murder about Wickenby because it appears to be starting to get results (or appeared to be before the ACC dropped the Hogan and Cornell investigation). That appearance is deceptive because there are some runs n the board.

Why declare now 200 runs behind when Boycott might go on and score a big century?

Comment from CALLIGULA
Time November 28, 2010 at 4:42 pm

I wonder if anyone out there ever considers how many wealthy people have assisted others to become well-off during their careers?

By this I mean that certain activities/industries, by their nature, would tend to spread wealth through the community, say, by way of direct employment or the involvement of ancillary disciplines.

It strikes me that the wealthy individuals being targeted by Wickenby tend to be of a sort more involved with amassing huge personal fortunes here in Oz then spending it all on overseas legal advice instead of paying tax.
The only way that can happen is if they were allowed to do that in the first place.

The matter of ‘legal privilege’ – privus lex – individual/private law
I find it difficult to accept that we have laws mandating the disclosure of personal/financial information to a whole rash of government agencies.

If the law mandates that Joe Bloggs, pensioner has to disclose his matchbox car collection to Centrelink/ATO then so should the likes of Hoges and Strop be so required.
If, on the other hand, Hoges and Strop can hide behind legal advice then should Joe Bloggs also be able.

If some law abets tax avoidance for the wealthy and some other law causes a poor person detriment – then what can be said other than that matters continue as normal in this country.

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