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Barry Lane
27 July, 2007  
Tax evasion and the DPP

There was never a satisfactory explanation as to why John Howard’s chum Rob Gerard was not prosecuted for his tax rorts. On the strength of the Gerard precedent we are left with the impression that Glenn Wheatley might be much more comfortably accommodated if he had kicked into the Liberal Party

imageOne can imagine that when Glenn Dawson Wheatley heard HH Judge Tim Wood of the County Court tell him that he was going to spend at least 15 months in the Big House, he might have said to himself: “How in the hell did I get into this mess?”

HH’s catalogue of Wheatley’s depredations on the Commonwealth and others can be viewed here.

Wheatley seems to have accepted that he would get a custodial sentence for failing to inform the tax commissioner of his earnings, which resulted in a loss to the revenue of $318,092.42, but I imagine he didn’t expect that any part of that sentence would be ordered to be served immediately.

Apart from being absentminded about a sizeable slab of assessable income, Wheaters also forgot to tell the trustee of his Part X arrangement under the Bankruptcy Act 1966 that he had earned income exceeding $150,000 during each of the years 1994 and 1995. The Part X noted a deficiency of liabilities over assets of approximately $16.9 million.

All this came to light after government gumshoes seized a computer belonging to a Swiss gnome called Philip Egglishaw at the Melbourne Sheraton Hotel in February 2004.

It turns out that Egglishaw was in the business of facilitating the clandestine export of taxable income to foreign parts so that it would be available to clients in a much more tax-efficient form. Otherwise assessable income was morphed into apparently legitimate loans, expenses, gifts and deductions.

When Wheaters was rumbled by the feds he quickly rolled over, admitted his misconduct and promised to assist the authorities in their pursuit of other Egglishaw clients.

The offender has also paid the tax evaded, being $318,092.43 plus $100,000 on account of penalties and interest. From the evidence, HH was unable to determine how much should have been paid to Wheatley’s Part X trustee.

Initially, it appears that the former show biz impresario was told by an assistant director of the Commonwealth DPP that in exchange for his confession and offer of assistance, the prosecution would urge the sentencing court not to impose an immediate custodial sentence. Unfortunately, that was not to be because when the DPP himself heard of the deal he jumped on it.

imageNevertheless, Wheatley (pic) did not alter his position, pleading guilty when he was charged and arraigned just before the plea was heard on July 6, 2007.

There are some cases where people have pleaded guilty to substantial tax frauds and escaped an immediate custodial sentence. On my researches, they are few and far between.

The Director of Public Prosecutions (Cth) v Carter [1998] 1 VR 601 is such an example although it must be said that two members of the Court of Appeal seemed puzzled at how the accused, a former franchised car dealer, had escaped the slammer after admitting evasion of $659,719 in sales tax over a period of four years. Nothing was repaid either. Nevertheless, the court dismissed the director’s appeal.

R v Morris [1993] 2 VR 192 is an example where the lack of an immediate custodial sentence was overturned by the Court of Appeal. The accused was a barrister who had understated his income by $473,712 over a period of nine years. When he was tumbled by a general audit of barristers, he entered into immediate negotiations with the tax office.

Unpaid tax, penalty and interest of $286,792.22 was paid by the agreed date of September 1, 1989. In exchange, the brief was told by the ATO that he would be treated as someone who had made a “voluntary disclosure” and not be prosecuted. Two years after he coughed up Morris was prosecuted.

On behalf of the court, Justice William Crockett said:

“The offences disclose a serious degree of criminality over a long period of time. They did, as the [sentencing] judge said, amount to a massive fraud on the revenue. The respondent acted so as to suggest that it was probable that his law breaking would have continued indefinitely but for his imminent detection. Further, the understated amounts represented a significant proportion of the respondent’s gross income over the relevant period.”

He went on:

“In our opinion, the critical consideration is that taxpayers cannot be permitted to defraud the revenue in the belief that detection can lead to no more than a requirement merely to make financial reparation and to pay a monetary penalty so as to enable the offender to ‘purchase’ immunity from prosecution under the criminal law.”

Thereupon, Morris was packed off to chokey for 18 months with six months to be immediately served.

I know it’s easy to be wise after the event, but perhaps Wheatley should have taken up Justice Crockett’s cue and “purchased” immunity from prosecution. Certainly, it seems to have worked for US pill pushers and other transnationals who, according to a recent report in The New York Times don’t seem to encounter any difficulties evading substantial tax obligations.

And it also seems to have worked for former Reserve Bank of Australia director Rob Gerard AO. His company, Gerard Industries Ltd, settled with the ATO for $70 million following an audit which allegedly disclosed deductions claimed in relation to sham insurance premiums paid over a period of 13 years.

Curiously, a report detailing Gerard’s Caribbean tax haven adventure was published in The Advertiser (Adelaide) on March 28, 2003, a few days after his appointment, but for some reason the whole mess didn’t blow up until publication of a report in The Australian Financial Review in late 2005. He resigned from the bank in a blizzard of publicity on December 2, 2005.

imageNeither Gerard (seen here in a smudgy shot, but you get the idea) nor his company has been prosecuted for any offence arising out of that investigation by the Australian Tax Office.

The Commonwealth DPP, Damian Bugg, told the Senate Legal and Constitutional Legislation Committee on February 27, 2006 that he had not pursued the matter because the ATO hadn’t referred anything to him. That reason didn’t, of course, preclude the DPP at the time from prosecuting Tim Morris.

It was reported in the Tiser on October 8, 2003 that Gerard was being urged by senior Liberals to become the party’s next federal treasurer such were the strengths of his contacts in the business community and his closeness to the prime minister. It was also said that Gerard was one of South Australia’s richest men and had donated more that $650,000 to the Liberal Party over the previous eight years.

So far as Mr Gerard’s connection with the PM is concerned, it was reported in The Sydney Morning Herald of November 5, 2003 that he was one of eight prominent businesspersons invited by the PM to the barbie at The Lodge to welcome Dubya.

Other invited bigwigs included Mark Leibler AO (Arnold Bloch Leibler and Coles Myer), Kerry Packer AC (Consolidated Press Holdings), Donald McDonald AO (ABC), Harry Triguboff AO (Meriton Properties), Terry Campbell (JB Were), Leon Davis (Westpac) and Kerry Stokes AO (Seven Network). With the exception of McDonald, all the others were said to have been substantial donors to the Liberal Party through their corporate emanations.

On February 2, 2006, the Tiser further reported that Gerard had “cemented his reputation as a good friend of the South Australian Liberal Party” by donating $162,265 in the previous financial year.

On the strength of the Gerard precedent if Wheatley had “donated early and donated often” he might have avoided being banged-up.