The tax fraud busters!

Don’t underestimate the power that lies in the hands of that other tax regulator. By TERRY HAYES of Thomson Legal & Regulatory.

By Terry Hayes

Tax fraud AUSTRAC tax office

The tax office is not the only government agency that seeks to prevent tax evasion and fraud.


It should not be forgotten that other agencies like the Australian Transaction Reports and Analysis Centre (AUSTRAC) also play a role in detecting tax evasion, although it also seeks to counter money laundering and major crime as well.

In its intelligence role, AUSTRAC provides information to state, territory and Australian government law enforcement, security, social justice and revenue agencies.

Not surprisingly, the tax office regularly uses data provided by AUSTRAC to track down tax cheats. In the last financial year, AUSTRAC information contributed to tax office assessments of more than $87 million, so its role is not a minor one. As well, AUSTRAC disseminated 23,740 “suspect transaction reports” to the taxman.

It’s worthwhile noting what kinds of transaction reports AUSTRAC receives, because this information can be fed into investigations of tax fraud and evasion. AUSTRAC receives reports on:

  • Suspect transactions – where a cash dealer has reasonable grounds to suspect the transaction may be relevant to the investigation of an offence against an Australian law, including tax evasion. These reports have been used to detect tax fraud by restaurant owners (see below).
  • Significant cash transactions – where the cash component of a transaction is $10,000 or more, or the foreign currency equivalent. “Cash” and “currency” both mean physical notes and/or coins.
  • International funds transfer instructions – where an instruction is electronically transmitted into or out of Australia, regarding a transfer of funds.
  • Cross-border movements of physical currency – where cash of $10,000 or more, or the foreign currency equivalent, is carried, mailed or shipped into or out of Australia.

We’ve all heard of Project Wickenby, the Government’s multi-agency taskforce investigating and prosecuting internationally promoted schemes to avoid or evade Australian taxes and launder money.

While this sounds like it probably wouldn’t affect many SMEs, the reach of this project is surprising. AUSTRAC is providing analytical support via its network of senior intelligence and liaison officers and its experienced data-mining analysts. AUSTRAC has also engaged its international counterparts on behalf of partner agencies to exchange financial intelligence in respect of Project Wickenby.

AUSTRAC has developed what it calls a new link analysis model and worked closely with the tax office using the new model to investigate the financial arrangements of high wealth individuals and promoters of offshore tax arrangements. AUSTRAC has indicated it will transfer the technical specifications to the tax office, so that taxation officers can do further independent in-house analysis.

During the last financial year, AUSTRAC seconded one of its senior analysts to the tax office for six months to assess the data-mining capabilities of both agencies. AUSTRAC believes the secondment proved that integrating its information into tax office revenue risk models gave better results. Given this success, AUSTRAC has agreed to an additional 12-month secondment of a full-time data-mining analyst.

Looking for tax cheats is getting more sophisticated all the time!

All this illustrates just some of the many ways the Government seeks to detect and bring to book those who flout the tax laws. As I said at the outset, don’t simply assume it’s only the tax office itself that is involved in this. Here are a couple of real life examples.

Restaurant – cash wages; false loans

The tax office initiated an investigation based on the receipt of anonymous information indicating that a restaurant was paying wages in cash and not remitting PAYG tax.

Auditors conducted AUSTRAC searches revealing suspect transaction reports that indicated that one of the owners of the restaurant was purchasing multiple international bank drafts with cash, in amounts just below the $10,000 reportable threshold.

The drafts were purchased in the names of family, friends and staff members and signed with different signatures. Based on this information, AUSTRAC said it was decided to audit the taxpayer and the business.

As the investigation progressed, AUSTRAC said examination of evidence confirmed that the restaurant owner was purchasing US dollar bank drafts with cash in false names and sending these offshore to relatives overseas.

Search warrants were executed and the information obtained, together with banking records and an extensive analysis of the business, clearly indicated that the owners had been systematically skimming profits from the restaurant and manipulating the cash registers to give incorrect sales readouts.

The skimmed funds were then sent to relatives overseas. The money was returned to Australia as “loans” and interest on these “loans” was claimed as tax deductions. Amended tax assessments were issued on all the business owners resulting in approximately $8.4 million in tax and penalties.

Tobacco fraud

In another case, AUSTRAC said a lengthy investigation into a Melbourne-based duty free store was finalised, with the company and its two directors convicted of multi-million dollar fraud charges. It was found that the company had been selling under-bond cigarettes in large quantities for over two years. The extent of these sales enabled the directors to evade taxes of over $2.5 million.

The moral of the story …

Don’t underestimate the powers and reach of government agencies. And don’t underestimate the sophisticated techniques they are now using in their fight against tax fraud. It’s a complex and interconnected world out there and governments seeking to protect their revenue bases are using all means at their disposal.


Terry Hayes

Terry Hayes is the senior tax writer at Thomson Legal & Regulatory , a leading Australian provider of tax, accounting and legal information solutions.

For more Terry Hayes features, click here .



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