By Nathan Lynch, Head Regulatory Analyst for Australia & New Zealand, Thomson Reuters
Lawyers, accountants and other professional service providers are facilitating tax evasion and money laundering in Australia on a scale that places them in the category of organised crime, according to senior policing figures and government officials.
The release of the Panama Papers has led to a coordinated crackdown on tax evasion and money laundering in Australia, with more than 1,000 entities under suspicion. Officials said professional facilitators — the so-called designated non-financial businesses and professions — had played a key role in many of the cases that are under investigation.
Andrew Colvin, commissioner of the Australian Federal Police (AFP), said the Serious Financial Crimes Taskforce (SFCT) was bringing together agencies with a range of civil, criminal and regulatory functions to target professional facilitators.
The taskforce includes members of the AFP and the Australian Transaction Reports and Analysis Centre (AUSTRAC), among others, who are investigating the extent to which Australian entities are involved in money laundering, tax evasion and other serious financial and organised crimes.
Some financial and legal “gatekeepers” in Australia — including members of the accounting and legal professions — are facilitating tax evasion and money laundering on a global scale, Colvin said.
“I think we need to keep in mind here that the professional facilitation networks that are behind a large amount of these schemes and scams are organised crime and we need to treat them as organised crime,” Colvin said.
Global “wake-up call”
Paul Jevtovic, chief executive of AUSTRAC, said the Panama Papers had served as a global “wake-up call” about the extent to which money laundering and tax evasion had become a professional industry. He said the joint taskforce had identified professional facilitators, including accountants and lawyers, who had created offshore structures and vehicles to conceal and move illicit wealth.
“As we learn more about the methodologies used to launder illicit funds, we reflect on and adjust our financial surveillance capabilities to further safeguard the integrity of Australia’s financial system and the economy,” Jevtovic said.
AUSTRAC has played a critical role in the taskforce with its intelligence database and ability to identify the suspicious cross-border movement of funds between Australia and other countries.
“Ultimately, we want to ensure that we close off these money laundering routes to organised crime and tax avoiders, but at the same time not impact on legitimate global business,” Jevtovic said.
Chris Jordan, the commissioner of taxation at the Australian Taxation Office (ATO), said the Panama Papers investigation was focusing on accountants, lawyers and advisers in the first instance. He said tax evasion, laundering and other financial crimes had become so sophisticated that people were relying extensively on advice from DNFPBs. Jordan said the taskforce hoped that by targeting gatekeepers they could have a “leveraged” impact on illegal schemes.
“People don’t just dream these things up and put themselves into incredibly complex webs of companies with all sorts of nominee directors and trusts to hide the true ownership. So we are focusing on the facilitators to get that leveraged effect,” Jordan said.
In one instance, the investigation identified six accountants who were facilitating suspicious structures for more than 60 clients.
Jordan said it was important to remember, however, that the 1,000 entities under investigation had not necessarily committed any offences.
“There are acceptable, normal commercial and business reasons that have some of these sorts of structures. So we have to go through carefully to eliminate those that have legitimate reasons for having those structures,” Jordan said.
The Serious Financial Crimes Taskforce has so far conducted around 300 audits since its inception. These uncovered around A$130 million in unpaid taxes and led to four custodial sentences. At present more than 19 joint operations are underway.
Insight into illegal structures
Kelly O’Dwyer, the minister for revenue and financial services, said the Panama Papers had provided an opportunity for the government to understand the types of structures that are being used to facilitate tax evasion, laundering and other financial crimes. She said the taskforce was receiving a “steady stream” of information from variety of sources both in Australia and overseas.
“Where offshore structures have been used to evade tax, avoid corporate responsibility, disguise and hide unexplained wealth, facilitate criminal activity and launder the proceeds of crime, the ATO will work with international law enforcement partners to share intelligence, investigate, and ultimately raise tax assessments against those individuals and ensure that they are prosecuted,” O’Dwyer said.
Michael Keenan, the minister responsible for the AFP and AUSTRAC, said the taskforce was building an intelligence picture of Australian-linked promoters, intermediaries and participants who were using Mossack Fonseca’s offshore services and structures for the purposes of concealing funds or avoiding tax.
The Australian Criminal Intelligence Commission (ACIC) is also using its coercive powers to gather intelligence. So far it has identified an eight per cent match between names in the Panama Papers and its existing criminal databases.
AUSTRAC’s database of transaction reports have identified A$2.5 billion in funds that have been linked to the 1,000 Australian entities identified in the Panama Papers, with some transactions going back a decade. There is no suggestion that all of these funds are illegitimate, however.
In addition to the Panama Papers, the government has access to an additional 10 “data sets” that have been either sent directly to the taskforce members or shared through partnerships with overseas agencies.
“We are talking about organised criminal activity here and that is why all the resources of the Australian law enforcement community are being brought to bear within this taskforce,” Keenan said.
The role of banks
AUSTRAC has also been working with domestic and international banks to build a picture of offshore service providers and the extent to which they are being used by Australian individuals and entities. The money laundering agency is working with the banking sector to educate them about the key risks and red flags to look out for when identifying suspicious activity.
AUSTRAC’s work with the banking sector includes looking at the “typologies” used by accountants and lawyers, who have facilitated the creation of offshore structures and vehicles to conceal and move illicit wealth.
The Australian Securities and Investments Commission (ASIC) has also been brought into the joint investigation.
ASIC is looking at the role played by company directors and officers, auditors, insolvency practitioners and business advisers. In particular, it is reviewing whether there is a culture of “poor gatekeeper culture and conduct” which is contributing to the facilitation of illegal schemes.
The government has said that gatekeepers underpin the integrity of the financial system and it wants to ensure that they adhere to the high standards that are expected of them. It is currently reviewing the anti-money laundering regime with a view to extending it to include professional service providers and other “tranche two” DNFBP sectors, including lawyers, conveyancers, accountants, jewellers, real estate agents and trust and company service providers.
The statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) identified the “tranche two” laws as a matter for urgent action. The government has committed to conducting a cost-benefit analysis of these reforms.
New Zealand recently leapfrogged Australia’s decade-long commitment to introduce a second tranche of the AML regime. New Zealand has begun a public consultation and expects to have the second phase of its AML/CFT laws in place by mid-2017, prior to the next election.
