Underhand down under

Janine Mace reports on Operation Wickenby, a $300m money laundering and fraud investigation

Mix together the names of some high profile entertainment figures, the lure of exotic tax havens and the secrecy of a few Swiss bank accounts and you have a sure-fire recipe for a media frenzy. And that is exactly what has occurred in the Australian media since the Australian Crime Commission (ACC) quietly executed a raft of search warrants at business premises and homes across the country in June.

In what is proving to be a very high profile international investigation, the ACC, the Australian Taxation Office (ATO) and the Australian Federal Police (AFP) have been busy with a A$300m probe into tax fraud, named Operation Wickenby.

All sorts of prominent Australian figures - including film stars, musicians, sports people, company directors, lawyers and accountants - have found their names mentioned in the context of the investigation.

When the ACC executed 48 search warrants across four states in June, the Australian minister for justice and customs, Senator Chris Ellison, said the investigation related to an alleged scheme involving offshore tax evasion and falsification of documents and transactions. Large quantities of documents were seized during the raids.

“Uncovering the paper trail is essential to the investigation of white collar crime, and the seizure of such papers is typically a prerequisite to arrests being made,” he announced.

While the secretive ACC has made few comments publicly, it has previously claimed to be focusing its investigations on “numerous promoters and participants, including a number of prominent Australians who are utilising offshore services to avoid tax liabilities”.

The commission is investigating eight separate matters relating to fraud, obtaining financial advantage by deception, knowingly dealing with the proceeds of crime and money laundering, offences that carry penalties ranging from 10-20 years and substantial fines.

Set up to reduce the incidence of organised crime, the ACC has extensive special powers - including coercive examination powers - while extraordinary secrecy laws in the ACC Act cover its activities.

Much of the attention of Operation Wickenby is reportedly focused on the activities of Geneva based accountancy firm Strachans SA and its principal, chartered accountant Philip Egglishaw, formerly of Jersey. Strachans is accused by the ACC and ATO of establishing a labyrinthine network of offshore blind trusts and tax avoidance schemes in a variety of jurisdictions.

According to a preliminary affidavit filed on behalf of ACC investigators, fake invoices were issued to help claim tax deductions, while offshore funds were allegedly repatriated to Australia via international credit and debit cards, and disguised as gifts.

Strachans has completely rejected the allegations and the firm says it will “vigorously” fight them, including appealing to the Swiss Supreme Court in Lausanne.

So far, Operation Wickenby has only resulted in the commencement of one legal action. This case alleges a Gold Coast phone book publishing company, Phone Business Directories Co, and its directors channelled A$6.83m of taxable income overseas since 1999 and then retrieved much of it through credit card transactions in Australia.

Following the filing of an ACC affidavit, three Porsches, nine properties and a mix of shares and cash have been seized, although the company directors have not been charged.

The ACC affidavit claims the directors used four offshore trusts and companies established by Strachans, then used credit cards from a Swiss bank to repatriate money. These activities are alleged to have involved using false identities to obtain multiple credit cards. No allegations contained in the affidavit have been tested in court or responded to in detail. However, Christian Faes, a partner at Ramsden Faes Lawyers who is acting for the company and its shareholders, has emphasised: “Our clients are assisting the authorities with their investigation and no allegations of dishonesty have been made against our clients.” He also stressed that the company paid millions of dollars in tax each year.

Opposition

While the operation appears to have made some progress, it is likely to face stiff opposition when the ATO attempts to gain access to client and bank records in Switzerland.

Although Swiss authorities are reported to have agreed, in principle, to co-operating due to the alleged presence of “some elements of fraud” in the investigation, the Association of Swiss Bankers is currently strongly opposed to the increased willingness of the Swiss Justice Department to co-operate with countries pursuing suspected fraudulent financiers and accountants.

Urs Roth, CEO of the Swiss Bankers Association, argued in a recent speech that Swiss “judicial assistance must not be abused by foreign countries using legal proceedings just as a pretext”.

Australian investigators have run into problems with Swiss confidentiality requirements in several other enquiries currently running relating to local entrepreneurs funnelling money through secretive financial arrangements.

Concern about the loss of tax revenue has seen the Australian Government recently issue draft legislation outlining fines for tax practitioners promoting schemes encouraging tax evasion. Under the draft legislation, fines of up to A$550,000 could be imposed, with critics claiming that the proposals are among the most stringent in the world.

But while there has been significant media attention focused on the ongoing tax fraud investigation, there has been less interest in developments relating to anti-money laundering, even though the ATO views the issue as equally important.

This has been reinforced by the ACC’s move earlier this year to establish Task Force Gordian, a national money laundering and tax fraud task force that combines the expertise of the ATO, ACC, AFP, state crime police and crime commissions and the Australian Securities and Investment Commission.

The low profile of anti-money laundering (AML) legislation in Australia is also likely to change soon, as the Australian Government has, for some time, been quietly working away on a fresh approach.

In December 2003, Australia committed to implementing the revised Forty Recommendations released by the international Financial Action Task Force on Money Laundering (FATF). This decision resulted in a significant review of Australia’s AML system and a series of industry specific papers covering the impact of planned changes have been released.

Burden

While there is clear support for reform on AML and counter-terrorist financing (CTF), a number of Australian industries - including the accountancy profession - have expressed concerns about the additional compliance burden likely to be imposed by the proposed legislation.

Overseas experience in countries such as the US, Canada and the UK has created unease about the compliance burden likely to be imposed under new “know your client” obligations.

Although the draft exposure bill has yet to be released, being a slow starter has given the Australian Government the advantage of being able to avoid problems that have arisen in other jurisdictions.

At this stage, the Government says it will be taking a risk based approach to client verification. This will involve principles-based legislation to establish a broad framework for the AML/CTF measures, with provision for flexibility through regulations and agreed AML Rules.

The new rules will be developed in consultation with industry and the Government’s own monitoring system for cross-border money flows, AUSTRAC. The approach is likely to allow modifications to be made in particular circumstances, based on the level of risk and the complexity of the activities.

According to Senator Ellison, the new AML system will exempt existing customers from identification requirements unless specific risk-triggers are met, and it will be developed to avoid unnecessary duplication of customer due diligence where multiple reporting entities are involved.

Given the heavy load of corporate law changes introduced in Australia in recent years, the Government has agreed to implement the new AML/CTF system in stages, with the initial reform phase to apply only to the financial services sector.

Initially, the accountancy profession will only have to make procedural changes when providing designated financial services, but it is likely to face additional requirements when the second phase of reforms is rolled out.

Janine Mace is an Australian freelance finance and business journalist.