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Project Wickenby – notes, and a warning, from the inside track

April 20, 2011

By Nicholas Shaxson

Nicholas Shaxson is the author of Treasure Islands, a book about tax havens, and writes for the Tax Justice Network.

Reproduced from the original on the Treasure Islands blog.

This long blog is compiled as a result of email communications I’ve had with Michael Inglis, a tax barrister in Australia who has got in touch with me about Treasure Islands (he liked it, but wanted to discuss a few things.) Inglis has been closely involved with Australia’s Project Wickenby, a large, dedicated and remarkably successful effort to go after tax evaders and other criminals using offshore structures. As the Australian Tax Office puts it, Project Wickenby:

“was established in 2006 to protect the integrity of Australia’s financial and regulatory systems by preventing people promoting or participating in the abusive use of secrecy havens.”

Inglis describes it like this:

“Project Wickenby is, to my knowledge, the biggest investigation into anything in the history of our Commonwealth, apart from time of war.”


The text here provides a fascinating insight into the interplay between tax authorities, tax cheats and criminals, and their advisers.

Before I get to it, I should highlight one especially fascinating element, where he explain how untrustworthy offshore trusts (and other structures) can be. As he explains it, lower down in this blog, offshore arrangements often involve a devious side agreement based on a pretence that the individual(s) concerned does not control or enjoy the assets and income in question – and hence can escape taxes or the long arm of the law – while in reality they do retain that control. But they are often discovering that when push comes to shove – notably when the courts or the Tax Authorities get involved – that the offshore promoters who had hitherto been so diligent in maintaining the real control alongside the pretence of non-control, suddenly find themselves reinterpreting the arrangement, and the individual actually loses control of the asset. (If you want to read more about the devious arrangements involved in offshore trusts, take a look at this TJN blog I wrote a while back: In Trusts We Trust .)

The untrustworthiness Inglis describes chimes with what I heard a couple of weeks ago at the Offshore Alert conference in Miami, where a seasoned investigator described in detail to me how players in all the different offshore jurisdictions frequently cannot be trusted to honour devious offshore agreements, and how those stashing their money offshore risked losing it. Inglis notes:

“The catastrophe to be avoided, at all costs, is being detected by the Tax Office (or other local or overseas agency), losing the benefit of the “hidden” assets or structures, and then being left stranded with substantial liabilities for tax, penalties and interest, with insufficient available funds to call on.”

I have compiled the text for the material below from emails from Inglis and from a presentation he made on March 22 in Sydney at a breakfast put on by a medium-sized national firm of accountants. In places his text has been abridged and slightly modified from the full version (which is available here). It is reproduced with his permission.

First, email commentary from Michael Inglis

The work I have been doing in recent years has involved my essentially (but not only) seeking to rescue a variety of punters from the more terrible consequences that flow from being detected by the Australian Taxation Office or one of its partner agencies in the joint task force drive against offshore tax evasion and associated money laundering, securities fraud etc, known as Project Wickenby.

Those punters have all been deep into a variety of offshore arrangements, and it’s almost always been tax evasion, money laundering, securities fraud etc.

You make a very substantial case (in Treasure Islands), indeed, as did Palan et al, for rebranding these tax havens/secrecy jurisdictions as crime havens. My extensive personal experience would strongly support that rebranding. In fact, tax havens is a euphemism, of an unjustified and powerfully self-serving kind, suggesting strongly that all that goes on in these places is tax avoidance, which is not unlawful, not criminal.

So many of the offshore service providers whose work is revealed to me, in the course of my trying to help those punters as detected by the authorities, are not in fact providing any genuine accounting, banking etc services at all. What they are doing is engaging in organised criminal activities and entering into a series of ongoing conspiratorial agreements with the relevant onshore patriarch or whoever.

Project Wickenby: Some Words for the Wise.

By Michael Inglis (my abridged and slightly amended version; his original is here.)

Project Wickenby is a very serious matter: hundreds of millions of dollars to fund it, many Commonwealth, and even State, agencies (including a number of law enforcement agencies) working together onshore and also offshore (and with their partner agencies overseas), thousands of targets (or taxpayers), and billions of dollars of tax involved.

When someone seeks my help, say, well into the Wickenby cycle – e.g. following receipt of a 264 notice – I often ask them, gently: “Have they got your attention yet?” On examination, it commonly turns out that the Wickenby target has been interacting with the Tax Office – and even, on occasions, with other agencies as well – for some time, without ever realizing that things were already serious, and had the potential to get a great deal more serious.

In my experience, the people who end up being prosecuted for serious tax crime have often compounded their original or underlying tax fraud or tax evasion by also doing one or more of the following during their dealings, once detected, with the Tax Office or other agency:

•    Telling lies or being evasive, in person, in response to written questions, or otherwise;
•    Secreting documents (e.g. by sending them offshore) or destroying documents;
•    Fabricating documents;
•    Hiding or stripping assets, onshore or offshore;
•    Offering a bribe to a Commonwealth officer; or
•    Threatening a Commonwealth officer.

The words “once detected” are pregnant with meaning, and I need to expand upon them at this stage.

A covert phase (covert ops) precedes the overt phase (overt ops). The relevant target may have been detected (or found out) long before, say, the execution of any search warrant by the Australian Federal Police (“AFP”). The target’s phones may have been “on” before he or she learns that he or she has been detected.

It is common practice for law enforcement agencies to leave the target of a criminal investigation “out there” for a substantial period, and blissfully unaware, until such time as it suits the agencies – under the overall criminal investigation plan – to put the balloon up (with the phones “on”), by means of an appropriate “event” such as the execution of a search warrant – and then see, and hear and record, precisely what happens.

Much can be gained by cleaning things up with the Tax Office before the Wickenby officers ever have occasion to make that crucial first compliance contact. “You came to us, we didn’t come to you, and that makes a difference”, is how it might be put.

In my experience, the earlier any at risk Wickenby target gets real, and climbs off the lies and deception inherent in such an offshore “trust” arrangement, the better it is for them. The barriers may include that they feel trapped by the lie and have no option other than to ride the lie to the end of the road.

What such a target needs is a realistic appraisal of their position, given the big facts that their number has now come up, they are the person who lives onshore (within the jurisdiction), they are the party now directly and immediately in the line of sight of the Tax Office and perhaps other agencies as well, their livelihood and even liberty are now very much at risk, the Wickenby agencies are now on their case, and to “sit tight, she’ll be right” is simply the worst possible available strategy for them. Once an overt Wickenby tax review, audit or criminal investigation commences, the turbulent river, in which the target then finds themself, can (and usually does) get deeper, faster and wider very quickly.

I often tell clients that only the truth shall set them free, and the truth shall be their protection.

Offshore promoters will typically make statements to the effect of “the Tax Office are a bunch of dopes, they never stick it out, and you’re a fool if you give them anything without a fight” or “Glenn Wheatley co-operated and look what happened to him – they took his money and he went to gaol as well”. The truth is very different: a truth I have lived with a number of at risk Wickenby targets. Once the balloon goes up, any at risk Wickenby target would be well advised to look to their own welfare, and that of their immediate family, above all things.

When presented with mature Wickenby matters, my experience has been that the presenting malady is often very severe, the time is often five minutes before midnight, and the need for speed is very great if anything of substantial benefit to the client is to be achieved.

Not all taxpayers caught in the Wickenby net will prove to be tax cheats, or to have been involved in other nefarious activities such as securities fraud or money laundering. Some may have simply made a mistake; on occasions, there are complex personal or business circumstances that drive the use of OFCs and secrecy jurisdictions. Tax may never have been a primary consideration for the offshore arrangements, especially where driven by suppliers or customers. However, the Project Wickenby agencies won’t necessarily appreciate these situations, particularly prior to first (open) contact with the target or taxpayer.

For those who have been simply hoping that the secrecy of their offshore arrangements will not be compromised, and that the best approach is to “sit tight, she’ll be right!”, their strategy may well need to be re-evaluated. Especially for those who have (big dollar) offshore arrangements but who are yet to hear from any of the agencies, now is the time to re-evaluate their strategy. There is the ever-present risk of things lurching into the criminal investigation area. There is still time to avoid being dragged before an inquisitor – so long as they are prepared to acknowledge their exposure and move to rectify it now. But the clock is ticking.

The caffeine in the brew

Whether the purpose is tax evasion, securities fraud, defeating creditors or an estranged spouse, hiding and laundering the proceeds of hard crimes such as drug dealing, hiding bribes or stolen monies, or simply money laundering, many offshore arrangements, including the more serious offshore arrangements commonly targeted by Wickenby, share a common theme.

That theme is the creation of the appearance of independent (or third party) offshore ownership and control of offshore assets or structures, onshore assets or structures, or a mixture of the two.

A simple example would be the creation of an apparently independent (or third party) offshore trust “arrangement” in, say, the Isle of Man where the relevant “trust” assets are monies on deposit with (or through) a bank in, say, Singapore or the Cayman Islands.

However, the caffeine in this particular offshore “trust” arrangement would be that the relevant (potential) Wickenby target – an Australian resident individual – is treated, by the relevant parties in the Isle of Man, Singapore, Cayman Islands or elsewhere, who have apparent control of the corporate trustee (and so the trust assets), as if the “trust” assets are in fact the personal property of that Australian resident individual.

(once again, see my blog on trusts to understand some of the mechanisms in more detail.)

As such, the all essential side agreement or arrangement – whereby the relevant offshore parties treat the Australian individual as if the “trust” assets are the personal property of that individual – is unenforceable in any court of law, it not being any part of the functions of the courts to aid or assist criminal activities.

As onshore and offshore patriarchs and matriarchs die, their heirs and successors are finding, in a material number of cases, that the side arrangements  – which meant, over the years, that their parent was treated as if they were the owner of relevant “hidden” assets and structures, both onshore and offshore – are not being honoured by those very offshore players who previously followed so diligently, year by year, the directions of the now deceased patriarch or matriarch.

As local and overseas revenue and law enforcement agencies, including the Tax Office and its fellow Wickenby agencies, make their enquiries, a significant number of other patriarchs and matriarchs (still alive) are finding that those very offshore players – whose cooperation is so vital to their supposed control of their supposed assets or structures, both onshore and offshore – are inclined, once that heat comes on, to dishonour the relevant side arrangements and act as if the apparent (independent, third party) ownership of the relevant assets and structures was, in fact, real.

The growing vulnerabilities of offshore arrangements provide some powerful reasons why any disentangling exercise should be effected before, rather than after, the Tax Office or other (local or overseas) agency gets on the front foot. Moving to obtain and confirm legal and indisputable ownership and control of the “hidden” assets or structures is the key, followed by actually getting the relevant monies or assets safely onshore.”

END

Some notes, for those who want to know more background:
1.    An aside: TJN’s John Christensen had an acquaintance from school in Jersey, who later developed a reputation of, to use a nice offshore euphemism, ‘having problematic clients,’ who got caught in the Wickenby net. His extradition proceedings stretched into their third year: “Lawyers for Mr de Figueiredo have won a long string of adjournments that have allowed their golf-loving client to keep living in a luxury apartment overlooking one of Britain’s most prestigious golf courses, rather than standing trial in Australia.” He was eventually extradited from Jersey to Australia the day before Christmas eve last year.
2.    Regarding this sentence “tax havens is a euphemism, of an unjustified and powerfully self-serving kind, suggesting strongly that all that goes on in these places is tax avoidance, which is not unlawful, not criminal” another experienced offshore insider we showed this material to had this to say, preceded by PERFECT PERFECT PERFECT. The insider added “Most of the people working in these places, (while unaware of the awful impact of tax dodging on poverty), in seeing incoming funds self-justify — as the boxes are ticked for basic anti-money laundering due diligence and no further/deeper questions asked. There is an illusion that such tax “minimization” is the right and entitlement of the wealthy, and so they put their efforts into conscientiously serving the client. Thus a blind eye is unwittingly turned by the majority of secrecy haven workers – many of whom would consider themselves to be “good people” and in fact they are. However, the particular elite who control the secrecy system know, absolutely, that criminal money is coming in, and extend themselves to provide that service motivated by greed, a hunger for power and social status, and fear too of the reprisals should they turn against that system. As an offshore banker, it is only when you reach the higher levels and inner circles that you become privy to the truth – and by the time you reach that stage (unless you are born into it, which some are) – both the carrot and the stick to encourage complicity are very, very strong incentivizing factors.
3.    Regarding the sentence “As such, the all essential side agreement or arrangement – whereby the relevant offshore parties treat the Australian individual as if the “trust” assets are the personal property of that individual – is unenforceable in any court of law, it not being any part of the functions of the courts to aid or assist criminal activities.” The offshore insider added: “When “selling” an offshore trust arrangement to a settlor, one is supposed to emphasise that such mechanisms such as a Memorandum of Wishes are not legally binding – however, it often happens that the bankers selling trust services are not themselves trust experts, and it frequently happens that products are sold with either actions or security mechanisms promised to the client that cannot legally (within trust law) be fulfilled – there is many an occasion that a trust specialist / trust administrator is frustrated and angered by the conflict that arises when what is promised or represented to the client cannot legally and technically be provided. Frequently, there is dissonance between the private banking “relationship manager” and the trust and company admin, also the banking back-office.”
4.    Mr. Inglis has a bit of a disagreement with me and the Tax Justice Network over our definitions of tax havens, secrecy jurisdictions. He says: “Tax havens (crime havens) are not just about tax evasion, as you have rightly emphasised. But, they are not just about secrecy or escape either. In essence, they are about secrecy plus deception. Jack Blum has rightly and powerfully reminded us, over the years, that so many of the relevant entities in these havens are just paper things, with no commercial or other reality.  Even where you have a properly constituted offshore IBC/shell company/trust, where necessary meetings are actually held, the point is that, in my experience, the apparent ownership and control of the relevant assets is a mere facade, a mere deceptive facade, created to cloak the criminal side agreement by reason of which (as I set out in my paper) the offshore parties in apparent control of the IBC etc treat the relevant onshore patriarch AS IF the relevant assets are the personal property of that patriarch, responding immediately and invariably to the directions of the onshore patriarch as to purchase and sale of assets, movement of monies onto and off deposit and between jurisdictions etc. In terms of tax, as opposed to associated insider trading or whatever, all of this is tax evasion not tax avoidance. It is criminal in nature, not civil in nature. This distinction has the most profound consequences when the balloon goes up at the time the patriarch is tumbled by the tax agency or other onshore authority. One profound consequence of it being tax evasion is that the punter is immediately at risk of being prosecuted for a series of serious indictable offences. There is a wonderful passage in R v Meares (1997) 37 ATR 321, NSW Court of Criminal Appeal, per Gleeson CJ at 323, which I commend to you: ”Although on occasion, it suits people for argumentative purposes, to blur the difference, or pretend that there is no difference, between tax avoidance and tax evasion, the difference between the two is simple and clear. Tax avoidance involves using, or attempting to use, lawful means to reduce tax obligations. Tax evasion involves using unlawful means to escape payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people may feel entitled to disregard that difference, no lawyer can treat it as unimportant or irrelevant. It is sometimes said that the difference may be difficult to recognise in practice. I would suggest that in most cases there is a simple practical test that can be applied. If the parties to a scheme [an offshore arrangement] believe that its possibility of success is entirely dependent upon the revenue authorities never finding out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance.” That is just so relevant to offshore, where secrecy AND deception are the order of the day, and most certainly the success of the various offshore arrangements (success back home, that is, onshore) is so frequently entirely dependent upon the relevant onshore authorities never finding out the true facts.”

Replying in brief, I think that our difference stems largely from our tendency to view these from an economic perspective, and his preference to view this from a legal, even legalistic, perspective. And one also needs to consider the grey area of legality – what is legal in one jurisdiction may not be legal in another. But that’s for another debate.

This is reposted elsewhere.

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Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.

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