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Thursday, 13 September 1984
Page: 984


Senator GARETH EVANS (Attorney-General) —I table the 1983-84 annual report of Special Prosecutor Gyles, QC. I seek leave to make a statement, the text of which I wish to incorporate in Hansard.

Leave granted.

The statement read as follows-

The Annual Report of Special Prosecutor Gyles for the year ended 30 June 1984 was received in my office at midday on 11 September 1984. The time that has elapsed has not permitted consideration by the Government in relation to all the matters raised in the Report. I am not required by the Special Prosecutors Act 1982 to table the Report until the fifteenth sitting day after receipt of the Report. However because of the rumour, innuendo and fabrications propagated by the Opposition about the suppression of the Report in whole or in part, and about its contents, even before it was received by me, the Government has decided to table the Report forthwith so that it may be read in its entirety.

Mr Gyles was appointed on 22 September 1982 as Special Prosecutor for a period of two years in relation to 'bottom-of-the harbour' tax evasion matters. The purpose of the appointment was in particular to concentrate special efforts on action with a view to prosecution of persons who were directly involved in the promotion and execution of 'bottom-of-the-harbour' schemes.

The Report notes that to the end of the year covered by the Report, 3171 profiles of persons and entities involved in company stripping other than simply as principals of companies stripped, had been compiled. They participated in the company stripping industry in various ways. After the initial collation approximately 150 persons were identified as high priority targets, and that number has since increased significantly. The Report also refers to an Australian Taxation Office estimate of the number of companies as having increased by more than fifty per cent-the latest estimate is about 6,000 compared with the original estimate of something over 4,000.

The Report notes that by 26 July 1984, 28 persons had been charged and brought before a court and 9 additional warrants for arrest were issued but not executed , of which 6 related to persons believed to be outside Australia. The names of the persons charged are set out in the First Schedule of the Report. There has so far been one completed matter with a plea of guilty. In all, 176 charges appeared to have been laid in relation to current matters. It is clearly inappropriate to make any comments which could be interpreted as affecting those proceedings.

Mr Gyles says that the gross excesses of the tax avoidance industry in the 1970s should never have occurred and should never be repeated. He states that if there had been an adequate administrative, judicial and political response in the first place the situation would never have arisen. The Government can only concur in those views, which indeed are identical with the views the Government expressed effectively in opposition on numerous occasions.

Civil remedies

The Report reveals a major difference of approach between the Commissioner of Taxation and the Special Prosecutor in two areas. The correspondence set forth in the Fourth Schedule of the Report deals with these differences.

The views of the Special Prosecutor in this regard are expressed in his Report. It is only fair that the viewpoint of the Australian Taxation Office should also be made available, and I shall be setting out below comments supplied to me by the Treasurer from that Office. I point out in this regard that both the Special Prosecutor and Commissioner of Taxation are almost wholly independent of Government in relation to the administration of their legislation. It is unfortunate that differences have occurred between them, but these are the facts . The history of part of the debate has been reported in the media on several occasions.

I would also suggest that the letters quoted in the 4th Schedule to the Report indicate that the Commissioner was prepared to fully co-operate with Mr Gyles except, as I have indicated, in two areas. These areas were the application of s .260 of the Income Tax Assessment Act 1936 to vendor-shareholders and the appropriate level and manner of commitment of compliance staff to the task of investigating and assessing promoters, their associates and other intermediaries .

Mr Gyles is kind enough to acknowledge a role for me in re-opening the use of s .260. However, in considering the timing of the decision to use s.260-a matter to which Mr Gyles has specifically referred-it is necessary to point out that differing legal views have been expressed to the present Government on the availability of s.260 in this area. I understand that a difference of views on the same topic was expressed to the previous Government. The previous Commissioner made it clear that his decision not to apply s.260 was based on what he believed to be the best legal advice, but that if the best legal advice now available was that the prospects of success were such as to warrant taking s .260 action, and the Government noted and accepted the implications of that advice, he would heed it.

This is not a matter on which I propose to give any detail, having regard to the decision, reflected in Mr Gyles's Report, that it has now been agreed that assessments will be raised in a series of cases in order to test the application of s.260 in the company stripping field, both as to current year profits and undistributed profits. To save people the trouble of trying, I make it clear that the Government will not be tabling any documents that bear directly upon the use of s.260. The obvious reasons for this are the public interest in protecting the revenue and the legal interests of the Commonwealth in the litigation that is proposed. I add that the important decision to re-open s.260 has been made all the more relevant by the intransigence of the Opposition Parties in the Senate in repeatedly rejecting amendments to the TUCT legislation relating to the collection of tax from vendor shareholders.

The following comments by the Australian Taxation Office have been supplied by my colleague the Treasurer.

''Apart from the s.260 matter, the second matter of difference between Mr Gyles and the Commissioner concerned the investigation, assessment and recovery of tax from promoters of company strip cases, their associates and intermediaries.

Mr Gyles takes the view that there ought to be an all out effort against promoters of 'bottom-of-the-harbour' schemes, their associates and intermediaries to collect from them the taxes they ought to have paid. He suggests that administrative disruption and expenditure of significant sums of money should be no barrier.

It has been recognised by all concerned that the task of investigating the affairs of persons associated with the promotion of tax avoidance schemes and company strips is one of considerable complexity requiring the skills of experienced auditors.

Many of those involved in promoting company stripping were also involved in promoting trust stripping and other tax avoidance schemes. Any investigation of these persons necessarily involves an examination of all related persons and entities. Other difficulties include lack of co-operation or positive obstruction, claims of professional privilege, difficulties in obtaining records and information, overseas implications and destruction of bank records.

Mr Gyles has stated his prosecution approach has been in the first place to concentrate investigations on some identified large scale promoters, even though this necessarily involved a substantial commitment of resources to a small number of targets and the relatively long lead time before a brief could be prepared to deal adequately with the target.

The Commissioner has advised that the application of the resources of the Taxation Office has involved setting similar priorities based on essentially the same value judgments.

The Commissioner advises that substantial investigation work has been carried out by his officers in relation to all major promoters and their high profile associates and where possible assessments have been raised and recovery proceedings commenced.

This has occurred notwithstanding the secondment to Mr Gyles's office of many of the officers most familiar with the affairs of the various promoters and their associates.

Of the list of 139 promoters and associates who are major targets of Mr Gyles, the position is that investigations are underway in respect of 85 of the named persons. Those 85 were responsible for more than 95 per cent of the known company pre-tax profit strips. Investigations have been completed in 19 of these and are well advanced in many more. The Commissioner advises that at present 80 experienced audit staff are engaged in this exercise. Another 34 cases have been listed for investigation and investigations will commence as soon as resources permit.

In revenue terms, it has been estimated that up to $150m in gross income has been derived by those involved in the promotion of company profit strips. To date tax and penalty in assessments raised against those persons total approximately $140m. Almost invariably the assessments have been contested.

Writs totalling $24.4m have been served on some of the major promoters. Two other major promoters have already been bankrupted. Garnishee action has been taken in a further two cases. The Commissioner pointed out that it was typical of these people to place their assets beyond reach and given the complicated company and trust structures generally used the tracing of assets and fixing of liabilities is extremely difficult. He made it clear that there was no lack of will on his part and all available avenues of recovery are being pursued.

It should also be recognised that many of these promoters face large assessments under the recoupment tax legislation a significant number of which have already been issued.

In the Commissioner's view demands for the allocation of further resources to the promoters exercise had to be balanced against other competing priorities. These activities include the provision of experienced officers to the Costigan Royal Commission and to the two Special Prosecutors Redlich and Gyles, the investigation of promoters, finalising the work arising from the tax avoidance explosion of recent years, trust stripping matters, recoupment tax and to the extent that any are not so engaged, general audit work. In this sort of situation the Commissioner said he must set his priorities by reference to the overall range of tasks to be performed and not simply focus on one task, important though it may be.

On page 9 of his Report Mr Gyles refers to the Commissioner's estimate of $150m in commissions earned by promoters of company strips and goes on to suggest that if all avoidance schemes are taken into account the revenue forgone runs into billions of dollars.

The Commissioner estimates that the total amount of tax disputed and otherwise, which was sought to be evaded during the 1970's under these schemes and arrangements was about $2,500m. He said this has been acknowledged in his annual reports to Parliament. On the assumption that promoters' fees averaged about 10 cents in the dollar (and this has been his general experience) it is estimated promoters may have received some $250m to $300m in gross fees.

Moreover, the Commissioner pointed out that assessments had been raised or will be raised in cases involving tax avoidance schemes as well as assessments against promoters. It was therefore not correct to say that any revenue had been forgone.

The decision not to allocate additional resources to promoters was made, the Commissioner said, in the light of the large number of very important tasks facing his office, none of which could be sacrificed.

There is the proposal by Mr Gyles to approach the Government seeking the establishment of special task forces to accelerate activity in these areas. These areas were promoters and associates, s.260 and trust stripping. The correspondence dated 6 April 1984 and later correspondence shown in the Fourth Schedule of the Report refers.

The correspondence shows that after some initial misunderstanding by Mr Gyles of the Taxation Office position, it was agreed that position papers would be prepared as a first step in putting together a proposal to the Government. These papers were to form the basis of discussion at a meeting between the Director of Public Prosecutions, the Attorney-General's Department, Mr Gyles and the Taxation Office. In the result no such meeting ever took place because consideration of this initiative was overtaken by the need to put its staffing proposals to Ministers within the time-frame of the preparation of the Budget. Nevertheless, Mr Gyles' views on extra staffing in the area of promoters and trust stripping were made known to the Government at that time.

The results of the Government's consideration of Taxation Office staffing are now known as a result of the Treasurer's Press Statement of 22 August 1984. As that statement shows the Government has given the Taxation Office significant staff increases in the current year including an extra 392 positions specifically allocated to the taxation audit area. The Government has also agreed to planned increases in future years to bring the audit coverage of business taxpayers to a figure of 1 per cent by 1987 and 2 per cent by 1992.''

Role of the DPP

Mr Gyles has strongly supported the arguments advanced by Mr Redlich and others in favour of giving the Director of Public Prosecutions powers to co-ordinate civil and criminal remedies. Mr Temby has been asked for his comments on Mr Gyles' suggestions, as he was asked for his comments on Mr Redlich's Report. Mr Temby has stated that he agrees generally with the views expressed by Mr Redlich and now confirmed by Mr Gyles.

As I indicated in my statement in relation to Mr Redlich's Report, great weight must be given to the views of Mr Temby and Mr Redlich, now joined by Mr Gyles. Nevertheless, different views are open and these views must be most carefully considered and decided. As I mentioned in that statement, I shall accordingly be taking to Cabinet at the earliest opportunity the question whether these recommendations should be implemented.

Decision to prosecute

I have read with interest Mr Gyles's comments in relation to the adequacy of the ''Prosecution Policy of the Commonwealth'' presented to the Parliament on behalf of then Attorney-General Senator Peter Durack, QC, in December 1982. Mr Gyles says that he is not sure that the guidelines are always satisfactory as a guide in making the initial decision to lay a charge. He comments that it may be appropriate in complex fraud charges to lay charges as soon as the prosecution is in possession of material of appropriate credibility which establishes a prima facie case notwithstanding that the materials fall short of strictly admissible evidence.

Honourable senators may recall that I dealt with the prima facie evidence rule in my ministerial statement on the Report of the Senate Select Committee on the Conduct of a Judge in the Senate on 4 September 1984. I referred to the '' Prosecution Policy of the Commonwealth'', presented to the Parliament on behalf of the then Attorney-General, Senator Peter Durack, QC, in December 1982.

Obviously it would not be appropriate for me to give directions in any way in relation to decisions made by Mr Gyles to prosecute in his capacity as Special Prosecutor. As to whether or not the Prosecution Policy Statement needs amendment, in the direction Mr Gyles has indicated, that is a matter in relation to which I will be seeking the views of the Director of Public Prosecutions, to whom my Department has already spoken on the matter and that is ultimately a matter for Mr Temby to decide. He has the Prosecution Policy under review at the present time. This particular matter is no doubt one to which close consideration will be given.

Crimes Act, section 86

Mr Gyles has drawn attention to the absence of a federal statutory offence of defrauding the Commonwealth. The only relevant offence at the moment is conspiracy to defraud the Commonwealth. This suggestion has been strongly supported by the Director of Public Prosecutions. I shall be examining the question of an early amendment of the Crimes Act to include such an offence. In the meantime, as has been announced, the Government proposes to introduce significant amendments to the taxation legislation designed to deal with conduct of the kind in question. However, the case for inserting a general provision along the lines suggested in the Crimes Act obviously must be examined closely and quickly. I shall be assigning the matter to the Task Force I have established in my Department to consider the Redlich Report.

Bank records

I am referring the suggestions of Mr Gyles in relation to bank records to the Treasurer for his consideration. This matter is already under study following earlier recommendations from the Costigan Commission.

Future operations

The Report notes that it has always been my view that the Director of Public Prosecutions should take over the work of Special Prosecutors. Mr Gyles in his Report has in effect suggested that, if this is to be done, there is much to be said for the view that the Director should accept a concurrent appointment as Special Prosecutor, and that this would ensure that his role as Director of Public Prosecutions does not become absorbed with a large scale investigative function. The Director of Public Prosecutions, as Mr Gyles is already aware, takes a different view. Nevertheless the matter will be considered by me.

Other matters

Other matters dealt with in the Report will be referred to the responsible agencies. In respect of a number of those other matters Mr Gyles has indicated that he will be providing further comments and suggestions in his final report.

The Government is grateful for the vigorous efforts by Mr Gyles in undertaking a daunting prosecution task of unprecedented magnitude.


Senator GARETH EVANS —I move:

That the Senate take note of the statement.