AUSTRAC information assisted authorities to investigate a tax evasion scheme promoted and facilitated by an accountant in Australia ('tax evasion' involves taxpayers deliberately breaking the law and dishonestly abusing the tax system to obtain a financial benefit).
The scheme used false invoices and loans to avoid tax. Authorities identified that a client of the accountant defrauded the Commonwealth of AUD2 million over a five-and-a-half year period.
The accountant was sentenced to six years imprisonment. The accountant's clients were sentenced to prison terms ranging from two to four years.
Authorities commenced an investigation into the accountant and a number of his clients, including suspect A.
Investigating authorities identified that suspect A operated an import business in Australia and was a participant in the tax evasion scheme operated by the accountant.
Suspect A and his wife were directors and shareholders of an Australian company (company 1). Suspect A was also a director and shareholder of another Australian company (company 2). An associate of suspect A was the co-director of company 2.
Authorities identified that the accountant controlled company 3, which was registered in Hong Kong and operated a bank account in Australia. This company was used to issue false invoices to companies 1 and 2.
Over a five-and-a-half year period company 3 issued false invoices to companies 1 and 2 for supposed 'brokering services'. Suspect A paid the false invoices, which totalled more than AUD2 million, by directing companies 1 and 2 to pay company 3. Over the five-and-a-half year period, at suspect A's direction:
- company 1 paid company 3 a total of AUD1 million
- company 2 paid company 3 a total of AUD1 million.
The payment of the false invoices was made by either domestically transferring funds to company 3, or by company 2 issuing cheques made payable to company 3. For example, company 1 domestically transferred AUD50,000 to company 3 in one transaction, and company 2 issued cheques totalling AUD1 million made payable to company 3 over a six-month period.
The payments were supposedly for 'commissions' on commercial deals brokered by company 3. Enquiries revealed that company 3 was not a broker and no service had been provided to warrant the payments.
Companies 1 and 2 falsely claimed deductions in their tax returns for the 'commissions' paid to company 3, which reduced their taxable income.
The funds paid to company 3, less the accountant's 10 per cent fee, were returned to suspect A and individuals associated with him.
Over the five-and-a-half year period, company 3 and other companies controlled by the accountant returned approximately AUD1.8 million of the funds originally paid by companies 1 and 2. The funds were distributed at suspect A's direction as follows:
- AUD100,000 by way of a loan to suspect A's business associate and co-director of company 2
- AUD200,000 to suspect A's wife
- AUD1.5 million to suspect A disguised as a 'loan'.
Analysis of AUSTRAC information identified two outgoing international funds transfer instructions (IFTIs) totalling AUD270,000 each, sent from company 3 to suspect A's bank account in Japan. The transfers represent part of funds returned to suspect A disguised as a 'loan'.
Suspect A claimed that the AUD1.5 million received from company 3 and other companies controlled by the accountant were a 'loan' from another company (company 4), which was registered in the British Virgin Islands and owned and controlled by the accountant. However, authorities found no evidence to support this claim: there was no record of any payments from company 4 to the suspect's personal bank accounts, company 4 did not have any bank accounts in Australia and it had not deposited any funds into any Australian banks.
Analysis of AUSTRAC data showed that suspect A and company 2 were both the ordering and beneficiary customers of international funds transfers from Australia to Japan totalling AUD1 million, sent over a period of three years.
Authorities believed these transfers were the proceeds of the tax evasion which were sent to Japan for the benefit of suspect A. In essence, suspect A directed companies 1 and 2 to make payments to company 3 in order for the funds to be transferred back to him tax free.
Authorities identified that suspect A spent approximately AUD400,000 of the funds received from companies controlled by the accountant on the demolition and rebuilding of his home, mortgage payments and living expenses.
Income tax inconsistencies
Authorities analysed the personal income tax returns of suspect A and identified that in one financial year he reported his gross income as AUD30,000. During the same financial year, AUD400,000 was deposited into a personal bank account held by suspect A, and AUD450,000 was withdrawn from the account.
Over the next three years, suspect A reported his gross personal income as AUD30,000 per year. Suspect A did not declare the AUD1.5 million he received from company A.
Authorities executed more than 20 search warrants on properties including the accountant's Australian accountancy business and suspect A's residential property, from which large quantities of documents were seized.
Charges and sentencing
Suspect A was charged with:
- three counts of being knowingly concerned in defrauding the Commonwealth under the Crimes Act 1914
- one count of aiding in general dishonesty causing a loss under the Criminal Code Act 1995
- one count of aiding in obtaining a financial advantage by deception under the Criminal Code Act
- four counts of obtaining a financial advantage by deception under the Criminal Code Act.
Suspect A was convicted and sentenced to four years imprisonment and required to pay a penalty of AUD1 million.
The accountant was convicted of aiding and abetting the commission of fraud against the Commonwealth and was sentenced to six years imprisonment.
A further three clients of the accountant were convicted of obtaining a financial advantage by deception. Two of the clients were sentenced to three years imprisonment and the third client was sentenced to two years imprisonment.
Case 10 - Accountants overseas tax evasion scheme landed clients in jail
|Jurisdiction||International – British Virgin Islands, Hong Kong, Japan|
|Designated service||Account and deposit-taking services|